Investing.com – President-elect Donald Trump has promised to encourage increased oil production, reigniting debates over the country's energy policy. However, trends in the energy sector suggest that such initiatives may face strong resistance, not from regulators or environmental advocates, but from the oil industry itself, according to CFRA research.
US crude oil production has already risen by 50% since 2014, reaching 13.2 million barrels per day in September 2024, just 1.2% below the all-time high recorded in August of the same year.
The United States remains the world's largest producer of crude oil, ahead of Saudi Arabia and Russia. This growth in production has occurred despite relatively modest investments in new drilling operations. Improved technology has enabled companies to efficiently extract more oil from existing resources, making intensive capital expenditure less important.
“Oil producers are spending cautiously as they remember 2009, 2016 and 2020,” the CFRA notes.
Companies have shifted their focus from strong growth to shareholder returns, with dividends and buybacks accounting for 36% of capital spending by oil-focused exploration and production companies in 2024. This figure represents a significant increase from 23% in 2014, indicating A clear shift in priorities away from reinvesting in oil field development.
“U.S. oil producers are shifting a smaller share of cash flow toward new production — and production is doing well,” the CFRA said in the memo.
Although reinvestment is limited, production remains strong, largely due to technological advances.
Crushing techniques are becoming more efficient, with fewer crushers providing the majority of production. This efficiency, while beneficial to producers like EOG Resources (NYSE:) and Diamondback (NASDAQ:) Energy, poses challenges to oilfield service providers like Halliburton (NYSE:), Schlumberger (NYSE:), Baker Hughes (Nasdaq:). These companies have seen their revenues per barrel of crude oil produced in the United States decline by 43% since 2014.
Instead of ramping up drilling operations, many exploration and production companies are turning to mergers and acquisitions to boost production. Recent deals, including Diamondback Energy's $26 billion acquisition of Endeavor Energy, highlight the industry's preference for inorganic growth.
“We believe a shift toward inorganic growth is reasonable in an environment where investors are punishing companies that signal strong growth in organic spending,” the CFRA continued. Even companies that have avoided major mergers and acquisitions are expected to grow in production, albeit at more modest rates.
In conclusion, while Trump's rhetoric may call for a return to “drill, baby, drill,” the industry's focus on capital discipline, efficiency, and shareholder returns could mitigate any increase in new drilling activity.
