Investing.com — With Donald Trump set to take office as President, he has vowed to promote an increase in oil production, reigniting discussions surrounding the country’s energy strategy. However, emerging trends in the energy industry indicate that such efforts may encounter significant pushback, not from regulators or environmental advocates, but rather from within the oil sector itself, as noted by CFRA Research.
Since 2014, U.S. crude oil production has surged by 50%, reaching 13.2 million barrels per day (mmb/d) in September 2024—just 1.2% below the record high achieved in August of the same year.
The United States continues to be the world’s leading crude oil producer, surpassing both Saudi Arabia and Russia. This increase in production has occurred despite relatively low investments in new drilling activities. Enhanced technology has allowed companies to extract more oil from current resources efficiently, making extensive capital expenditures less necessary.
CFRA remarked, “Oil producers are cautious spenders because they remember 2009. And 2016. And 2020.”
Firms in the sector have shifted their emphasis from aggressive expansion to prioritizing shareholder returns, with dividends and stock buybacks now constituting 36% of capital expenditures among oil-focused exploration and production companies (E&Ps) in 2024. This marks a significant rise from 23% in 2014, indicating a clear transition away from reinvesting in oilfield development.
CFRA noted, “If anything, U.S. oil producers are directing a smaller portion of their cash flow toward new production—and production is performing well.”
Despite limited reinvestment, production remains strong, largely due to technological innovations.
Fracking methods have become more effective, with fewer fracking operations generating the bulk of output. While this efficiency benefits producers such as EOG Resources and Diamondback Energy, it poses difficulties for oilfield services companies like Halliburton, Schlumberger, and Baker Hughes, as these firms have seen their revenue per barrel of U.S.-produced crude oil decrease by 43% since 2014.
Rather than increasing drilling activities, many E&Ps are opting for mergers and acquisitions to enhance production. Recent transactions, including Diamondback Energy’s $26 billion purchase of Endeavor Energy, underscore the industry’s preference for external growth strategies.
CFRA stated, “We believe the shift towards inorganic growth is logical in a climate where investors penalize companies that advocate for aggressive organic spending growth.” Even those companies that have refrained from large-scale M&A are expected to experience production growth, albeit at more subdued levels.
In summary, while Trump’s call may evoke the spirit of “Drill, Baby, Drill,” the industry’s emphasis on capital discipline, operational efficiency, and shareholder returns may limit any potential increase in drilling activities.
