Diamondback Energy is among the first US shale independents to accelerate drilling in response to the war-fuelled rally in oil prices, while the US majors stick to plans set out before the Middle East conflict.
For the most part, the US oil industry has been reluctant to heed calls from the White House to step up output as oil prices surged above $100/bl, against the background of a crisis that has left the strait of Hormuz oil chokepoint effectively shut for over two months. The administration has been preparing for extended disruptions to Mideast Gulf oil supplies. President Donald Trump last month extended by 90 days a waiver of domestic shipping requirements under the Jones Act, while invoking a Korean War-era defence law in a bid to boost oil production and refining. But the US oil industry remains reluctant to increase output, given the uncertainty over how long the war will last. Its caution reflects some tough lessons from the past, when shale booms during bouts of higher prices were quickly followed by bust.
But Diamondback, known for using a "stoplight" analogy over the past year when setting out its drilling intentions, says the light has now turned green, thanks to signs of growing worldwide supply disruptions. "If that isn't a signal to grow production in an advantaged area like the Permian basin, then I don't know what is," chief executive Kaes Van't Hof says. The operator will draw down its balance of drilled-but-uncompleted wells to maintain current output of more than 520,000 b/d — an increase of 3pc from original guidance for this year. It also expects to run five completion crews consistently for the rest of the year and to add 2-3 rigs. The company has scope to further grow output if it decides to.
Diamondback sees the Permian adding 20-30 rigs overall in response to the price surge, with privately held operators leading the way. That is a far cry from the 100 or so rigs added during the price rally in 2022 that was spurred by Russia's full-scale invasion of Ukraine, and reflects consolidation in the shale patch in the intervening years and a dwindling number of private firms. "They're going to move very quickly," Van't Hof says. "I just don't think the volume impact will be nearly what we saw in that 2022 timeframe."
The US oil majors are taking a different approach as they navigate the challenges from the war across their global operations. Before the conflict, ExxonMobil was already forecasting that its Permian output would grow by 12pc this year to 1.8mn b/d of oil equivalent (boe/d). Chief executive Darren Woods reiterates that it is not the company's view that the basin is set to plateau any time soon, unlike others in the industry. "We're going to continue on the pace that we've been at," Woods says. "I would say we are running pretty full speed."
Cash flow before crude flow
Chevron had already moderated production growth in the Permian in favour of cash flow, and its output from the Permian is just over 1mn boe/d. "We could hit the gas and begin to grow it again, but I don't know what the future looks like," chief executive Mike Wirth says. Right now, the value the company is seeing in improved asset reliability and reduced lost output to downtime is "very real", he adds. "A shift to quickly turn to more production growth might dilute that focus."
Other US operators have unveiled modest tweaks to output plans in response to the recent surge in crude prices. EOG Resources is allocating some resources for the rest of the year to liquids assets from natural gas, while keeping its overall spending unchanged. Chief executive Ezra Yacob says it is too early to predict how next year will shape up: "We're just not quite there yet as far as making a call on picking up rigs or frac fleets and investing longer-term."
