As the Trump administration promotes American “energy dominance,” U.S. E&Ps are relearning how to make money at $60/bbl oil.
Global trade and tariff uncertainty, plus OPEC’s acceleration of oil production cuts, have pushed crude prices down 12% year-over-year to around $60/bbl.
WTI crude prices traded below $60/bbl on April 7, their lowest level since April 2021 in the middle of the COVID-19 pandemic.
Some oil and gas producers that helped fuel Trump’s return to the White House are now questioning the direction of the administration’s energy policy.
“This administration better have a plan @SecretaryWright,” Diamondback Energy President Kaes Van’t Hof wrote in an April 7 post on social media website X. The post was aimed at U.S. Energy Secretary Chris Wright.
Van’t Hof declined to comment further beyond his post. Van’t Hof will take over as CEO of Diamondback, the Permian’s top independent producer, at the company’s annual meeting later this year.
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Permian price check
With prices around $60/bbl, some U.S. producers could be pushed to drop drilling rigs and curtail investment in costlier exploratory basins.
The Permian Basin, the nation’s top oil-producing region, dropped three drilling rigs in the week ended April 4, per Baker Hughes rig count data. About half of U.S. onshore rigs are in the Permian.
“At a high level, the ~$10/bbl change in strip pricing since last week would potentially cause Permian cash flows alone to be $2.2 billion lower,” TD Cowen analysts reported April 8.
Sustained lower prices for months could potentially put 30% of Permian drilling activity “at risk of rationalization,” they said. Movements in rig activity lag commodity prices by generally a month or more.
Large public producers, like Diamondback and its peers, can withstand lower oil prices than smaller private firms. But private operators still account for 60% of the U.S. rig count today.
“We will be fine, but this last week will hurt a lot of people in this industry for a long time,” Van’t Hof wrote on X in response to another user.
Diamondback has spent over $30 billion in the past year to acquire Permian assets from private producers, including Endeavor Energy Resources, Double Eagle Energy IV and TRP Energy.
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‘Consider curtailing development’
The Permian has the lowest average drilling costs of any U.S. shale play. But lower oil prices complicate exploration drilling in more expensive basins.
Producers in the Permian’s Midland Basin—dominated by publics like Diamondback, Exxon Mobil, ConocoPhillips and Occidental—need an average $61/bbl WTI price to profitably drill a new well, according to the Dallas Fed’s first-quarter energy survey.
In the deeper Delaware Basin, it’s $62/bbl; other fringier parts of the Permian, $70/bbl.
It’s even more difficult to develop new resource plays with prices this low.
“Especially if a given play lacks service scale and competitive drilling returns early on,” they can be a drag on capital efficiency, Tudor, Pickering, Holt & Co. analysts reported April 7.
Wyoming’s Powder River Basin is a prime example, they said.
EOG Resources, Devon Energy and Occidental are public E&Ps that have worked to unlock the Powder River Basin (PRB) for over five years.
“From a returns perspective, we do not think the PRB is remotely competitive with other core resource plays for [Oxy, EOG and Devon],” TPH analysts wrote, “with the majority of their capital programs focused in a mix of the Permian, Eagle Ford, [Denver-Julesburg] and Bakken.”
Based on the firm’s analysis, costs to drill PRB targets—including the Niobrara and Mowry benches—are likely $20/bbl to $30/bbl higher than other core plays.
Ultimately, the PRB is “a basin in which we think producers should consider curtailing development into a weaker macro backdrop,” TPH said.
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