With just a week remaining before U.S. President-elect Donald Trump assumes office for his second term, the oil and gas industry is eagerly anticipating his approach to implementing his 'Drill, Baby, Drill' agenda. Trump has pledged to encourage shale producers to escalate output, even if it necessitates operators 'drilling themselves out of business.' However, the feasibility of this ambition remains uncertain as U.S.
oil production is primarily managed by independent companies, not a national oil company (NOC). Liam Mallon, Upstream President of Exxon Mobil, recently expressed skepticism regarding a substantial surge in U.S. production under a second Trump administration. 'I think a radical change is unlikely because the vast majority, if not everybody, is primarily focused on the economics of what they're doing,' Mallon stated last week at a conference in London.Despite Trump's intentions, several factors, most notably plunging oil prices, are likely to overshadow oil companies' attempts to rapidly increase U.S. oil output. Two years ago, the Biden administration urged U.S. companies to boost production to combat rising fuel prices. Back then, oil prices were hovering around $100 per barrel, and oil companies were experiencing record profits. However, last year witnessed a significant deceleration in non-OPEC supply growth, shrinking from 2.46 million barrels per day (mb/d) in 2023 to 0.79 mb/d in 2024. This decline was primarily attributed to a reduction in U.S. total liquids growth from 1.605 mb/d in 2023 to 734 thousand barrels per day (kb/d) in 2024. Low oil prices have effectively disincentivized further drilling. StanChart anticipates this trend to persist, with U.S. liquids growth projected to reach only 367 kb/d in 2025 before further slowing down to 151 kb/d in 2026.Over the past five years, oil and gas companies have prioritized returning a substantial portion of their profits to shareholders through dividends and share buybacks. Consequently, with declining oil prices over the past two years, these companies have increasingly resorted to borrowing to maintain shareholder satisfaction. Notably, Bloomberg reported in late October that four of the world's five largest oil 'supermajors' collectively borrowed $15 billion to fund share buybacks between July and September. According to a Bloomberg analysis, ExxonMobil, Chevron, TotalEnergies, and BP wouldn't possess sufficient cash reserves to cover the dividends and share buybacks demanded by their investors, let alone increase capital expenditure for drilling. 'Borrowing to buy back shares isn't uncommon in the oil business,' Bloomberg elucidated. 'But a dimming outlook for oil prices next year means the cash shortfall is apt to continue over the longer term,' especially at a time when investors anticipate immediate returns. Beyond financial considerations, other structural and technical challenges could impede the swift expansion of U.S. shale oil production under Trump's leadership. According to commodity experts at Standard Chartered, U.S. oil production, particularly unconventional shale oil production, has undergone significant transformations since Trump's initial presidency in 2017. StanChart emphasizes that U.S. crude output reached 13.40 million barrels per day (mb/d) in August 2024, surpassing the previous record of 3.31 mb/d set in December 2023.U.S. crude production has surged by 4.7 mb/d since the pandemic-era low of May 2020; however, it's only 0.4 mb/d higher than the pre-pandemic peak of November 2019, translating to an annual production growth rate of just 80 thousand barrels per day (kb/d) during this timeframe. StanChart observes that the dynamics of U.S. shale oil production render sustained long-term supply increases difficult to achieve. The country's oil production is largely dominated by a handful of major and independent producers, alongside private companies, rather than a national oil company as commonly observed with many OPEC producers. These companies have largely abandoned their previous 'drill-baby-drill' approach and embraced stringent capital discipline, prioritizing shareholder returns through dividends and share buybacks over rapid production growth.StanChart also highlights that extensive mergers and acquisitions (M&A) activity within the sector has reduced the number of operational companies, reshaping the landscape from a fragmented network of small producer acreages to larger contiguous tracts. This new operational model facilitates complex drilling and completion techniques, including multi-pad wells with exceptionally long lateral sections that optimize spacing and associated infrastructure. These advancements in drilling and completion efficiency have enabled production to continue expanding despite a decline in rig count. StanChart's perspectives appear to align with those of Goldman Sachs' analysts, who also foresee limited upside potential for U.S. shale production in the near term
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US Shale Industry Embraces Discipline Over 'Drill, Baby, Drill'The American shale industry is prioritizing shareholder returns and financial stability over aggressive production growth, even with a second Trump presidency. Consolidation and market shifts have led to a more disciplined approach, focusing on efficiency and profitability.
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