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Investing.com – President-elect Donald Trump has promised to encourage more oil production, reigniting the debate over the country’s energy policy. However, trends in the energy sector suggest that such measures could face strong opposition, not from regulators or environmentalists, but from the oil industry itself, according to CFRA Research.
US crude oil production has increased by 50% since 2014, reaching 13.2 million barrels per day (mmb/d) in September 2024, only 1.2% of the all-time high recorded in August of the same year that.
The US remains the world’s largest producer of crude oil, surpassing Saudi Arabia and Russia. This increase in production occurred despite relatively little investment in new drilling. Improved technology has made it possible for companies to extract more oil from existing reserves more efficiently, resulting in significantly lower capital expenditures.
“Oil producers are careful users because they remember 2009. And 2016. And 2020,” says CFRA.
Companies have shifted their focus from strong growth to shareholder returns, with dividends and stock purchases accounting for 36% of spending by firms focused on oil exploration and production (E&Ps ) by 2024. This figure represents a significant increase from 23% in 2014. a clear shift in importance away from reinvestment in oilfield development.
“If anything, US oil producers are diverting a small portion of cash flow to new production — and production is doing well,” CFRA said in a note.
Despite low investment, production is still strong, mainly due to technological advances.
Fracking processes are becoming more efficient, with a smaller number of fracs providing more production. The move, while good for producers like EOG Resources (NYSE: ) and Diamondback (NASDAQ: ) Energy, is causing problems for oilfield service providers like Halliburton (NYSE: ), Schlumberger (NYSE: ), and Baker Hughes (NASDAQ:). These companies have seen their revenue per barrel of crude oil produced in the US drop by 43% since 2014.
Instead of increasing drilling, many E&Ps are turning to mergers and acquisitions to expand production. Recent transactions, including Diamondback Energy’s $26 billion purchase of Endeavor Energy, highlight the industry’s preference for organic growth.
“We think a shift towards organic growth makes sense in an environment where investors are hammering firms that suggest strong organic growth,” CFRA continued. Even companies that have avoided large-scale M&A activity are expected to achieve productivity growth, albeit at very low prices.
Finally, 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 temper any move by new drilling operation.
