US shale oil production may have peaked Diamondback Energy (FANG.US) CEO warns that the country's energy security may be at risk

The Zhitong Finance App learned that Diamondback Energy (FANG.US) CEO Travis Stice sent a letter to shareholders this week saying that due to the recent sharp drop in oil prices, US onshore oil production may have peaked and will begin to decline this quarter. This not only shakes America's position as the world's largest fossil fuel producer, but also poses a threat to the country's energy security.

According to Stice, U.S. crude oil prices have fallen by about 17% since the beginning of the year. Market expectations for crude oil demand weakened rapidly due to concerns about the recession caused by President Trump's imposition of tariffs on foreign countries, while OPEC+ oil producers, led by Saudi Arabia, are drastically increasing supply. Stice pointed out that if adjusted for inflation, the current level of oil prices has only been seen in the two quarters since 2004, without taking into account the abnormal fluctuations during the COVID-19 pandemic in 2020.

“As a result, we believe that current commodity prices have pushed U.S. crude oil production to a critical point.” In his letter, he wrote, “U.S. onshore oil production is likely to have peaked this quarter and will begin to decline.” He pointed out that the decline in industry activity is a sign of this trend.

As the most important oil and gas producing region in the United States and one of the key developers in the Permian Basin, Diamondback Energy is the third largest crude oil producer in the region and the sixth largest in the US. The price of WTI crude oil rose more than 4% to $59.56 per barrel on Tuesday, driven by expectations of production cuts in the US.

US energy security may be at risk

The “shale revolution” of the past 15 years has made the US the world's largest producer of oil and gas, producing even more than Saudi Arabia and Russia combined. “This transformation has completely reshaped our economic landscape and brought about energy security that was unimaginable at the beginning of this century,” Stice said.

But he warned that today's oil prices, market fluctuations, and macroeconomic uncertainty are threatening the results of this energy transition. “To maintain the US crude oil production of 13 million barrels per day, or 6 million barrels per day in the Permian Basin, the capital expenditure required will probably exceed what the current business model can withstand.”

In a conference call with analysts, Stice said, “We can't predict the direction of the global market, but we can see very clearly about the US market. The current trend is slowing down sharply and may turn into a decline in production.”

There is a clear sign of a decline in activity

He added that since this year, the number of US operating teams engaged in shale oil and gas fracturing has been reduced by 15%, with the Permian Basin being reduced by as much as 20%. The number of rigs used for oil and gas extraction is expected to drop by nearly 10% by the end of the second quarter, with a further decline in the third quarter.

In response to market changes, Diamondback Energy has cut its annual capital expenditure budget by approximately $400 million from its previous high to between $3.4 billion and $3.8 billion. Stice pointed out that the biggest cost pressure currently facing the company comes from the steel tariffs imposed by the Trump administration. This policy pushes up drilling costs by about 1%, or $40 million, every year. However, he also said that as business activity slows down in the future, the company will offset some of the cost increase by improving efficiency.

Currently, Diamondback Energy has cut three rigs and a completion team, and is expected to maintain this size for most of the third quarter. The company plans to drill 385 to 435 wells this year, and the number of completed wells is 475 to 550.