U.S. onshore oil production has likely peaked and will start to decline due to the recent plunge in crude prices, jeopardizing the nation’s position as the world’s largest fossil fuel producer and its energy security, the CEO of Diamondback Energy told shareholders in a letter this week
U.S. crude oil prices have tumbled about 17% this year as recession fears due to President Donald Trump‘s tariffs weigh on demand expectations. At the same time, OPEC+ producers led by Saudi Arabia are rapidly increasing supply to the market.
Adjusted for inflation, there have only been two quarters since 2004 when front-month oil prices have been as cheap as they are now, excluding 2020 when the Covid-19 pandemic swept the world, Diamondback CEO Travis Stice wrote.
“Therefore, we believe we are at a tipping point for U.S. oil production at current commodity prices,” Stice warned the company’s shareholders in a letter published Monday. “It is likely that U.S. onshore oil production has peaked and will begin to decline this quarter,” Stice told investors in his letter, pointing to cuts in activity levels.
Diamondback is an independent oil and gas producer focused on the Permian Basin, the most prolific oil patch in the U.S. The company is the third-biggest oil producer in the Permian and the sixth biggest in the continental U.S., according to data from Enverus.
U.S. crude oil prices rose more than 4% to $59.56 per barrel Tuesday as domestic production is expected to decline.
Energy security at risk
The shale revolution over the past 15 years has transformed the U.S. into the largest fossil fuel producer in the world, with the country pumping more oil and gas than Saudi Arabia and Russia combined, the CEO said.
“This has transformed our economy and given the United States a level of energy security not thought possible at the beginning of this century,” Stice told investors. “Today’s prices, volatility and macroeconomic uncertainty have put this progress in jeopardy,” the CEO warned.
Depending on how much oil prices fall, the amount of capital needed for the U.S. to produce 13 million barrels per day and for the Permian to produce 6 million bpd “might be an untenable lift for the business model that we put in place, where we’re returning so much back to our investors who own the company,” Stice told analysts on Diamondback’s earnings call Tuesday morning.
“We don’t have a crystal ball in the rest of the world, but we have a very good view of what the U.S. looks like, and right now, that’s a business that’s slowing dramatically and likely declining in terms of production,” Stice said.
Onshore production to decline
The number of crews fracking shale for oil and gas has already fallen 15% this year with crews in the Permian Basin down 20% from a peak in January, Stice estimated, warning that number of crews will likely decline further.
Rigs focused on oil production are expected to decline nearly 10% by the end of the second quarter and fall further in the third, the CEO said.
Diamondback has cut its capital budget by about $400 million to $3.4 billion to $3.8 billion this year. Trump’s steel tariffs are the biggest cost headwind the oil producer is currently fighting, Stice said. Those tariffs have increased well costs by about 1% or $40 million annually, the CEO said. Efficiency gains are expected to offset rising costs as activity slows in the coming quarters, he said.
Diamondback has dropped three rigs and one completion crew, and the company expects to remain at these levels through the majority of the third quarter, the CEO said in his letter. It now expects to drill between 385 to 435 wells this year and complete 475 to 550 wells.
“To use a driving analogy, we are taking our foot off the accelerator as we approach a red light,” Stice said. “If the light turns green before we get to the stoplight, we will hit the gas again, but we are also prepared to brake if needed.”
