US onshore crude production has likely peaked as activity slows in response to the recent decline in oil prices, according to Diamondback Energy.
The leading US independent estimates that the US hydraulic fracturing crew count is already down 15pc this year, while the frack crew count in the Permian basin has fallen by about 20pc from its January peak. Moreover, the US oil rig count is expected to be almost 10pc lower by the end of the second quarter with further declines seen.
"As a result of these activity cuts, it is likely that U.S. onshore oil production has peaked and will begin to decline this quarter," Diamondback's chief executive officer Travis Stice said in a letter to shareholders.
Given the shale sector has matured from the rapid growth seen in the early days of the shale boom, "this is not one of the types of declines that can be offset by improved efficiencies," Stice later told analysts on a conference call.
Diamondback Energy also set out plans to cut spending and drill and complete fewer wells in the aftermath of the price slump, which has been driven by the economic fall-out over President Donald Trump's sweeping tariff policy, as well as the Opec+ group's plan to accelerate the return of barrels to the market.
Capital spending is now seen at $3.4bn-$3.8bn this year, a decline of 10pc from the midpoint of previous expectations. The company will drop three rigs and one full-time completion crew in the second quarter, and expects to hold steady at those levels through most of the third quarter.
If oil prices remain weak or fall further, Diamondback could reduce activity further. Or if prices rebound above $65, it could ramp activity back to previous levels.
Under normal circumstances, it would use a period of lower service costs to build more drilled but uncompleted wells. But well casing, its biggest drilling input cost, has increased by 10pc in the last quarter due to steel tariffs.
"To use a driving analogy, we are taking our foot off the accelerator as we approach a red light," said Stice. "If the light turns green before we get to the stoplight, we will hit the gas again, but we are also prepared to brake if needed."
The impact on oil output is expected to be minimal given volumes have outperformed year to date. The company now sees annual oil production in a range of 480,000-495,000 b/d, down just 1pc from the midpoint of prior guidance.
