U.S. oil producers should prepare to weather through a prolonged period of lower prices, says one of the Permian Basin’s top executives.
Oil markets are “now probably set for a period of weakness, probably more weakness than where we are today,” Diamondback Energy President Kaes Van’t Hof said April 15 at the World Oilman’s Mineral & Royalty Conference in Houston.
WTI oil prices averaged $61.48/bbl in the week ended April 11, according to Stratas Advisors. Prices have fallen to their lowest level since early 2021.
Tariff uncertainty from the Trump administration, plus OPEC’s acceleration of production cuts, have pushed crude prices down 12% year-over-year.
“I think before Liberation Day, there was a case towards being pretty bullish,” said Van’t Hof, who will transition to Diamondback’s CEO at the company’s 2025 annual meeting. On April 2, Trump levied a 10% tariff on all imported goods and additional tariffs for specific countries that caused oil prices to fall before the president placed a 90-day pause on the taxes.
“Unfortunately, it all feels a bit self-inflicted,” he said.
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 goals.
“This administration better have a plan @SecretaryWright,” Van’t Hof wrote on social media website X earlier this month. The post was aimed at U.S. Energy Secretary Chris Wright.
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Inventory check
Executives agreed that crude prices in the $50s to $60s couldn’t support current U.S. drilling activity.
Based on conversations with other operators, “there’s going to be a significant contraction in U.S. activity and production even if we hold $60,” Van’t Hof said.
A $50/bbl to $55/bbl range would yield “a really tough situation for U.S. production.”
Chris Steddum, CFO of Permian Basin minerals giant Texas Pacific Land, said rig activity would decline in major basins and large projects would be delayed under a $50/bbl environment.
Texas Pacific Land originates from a failed, 150-year-old transcontinental railroad project. Today, TPL owns a vast portfolio of Permian land and mineral rights.
High-quality U.S. inventory is running low, particularly at lower oil prices.
“There’s less and less U.S. inventory, particularly inventory that breaks even at $40, let alone $50,” Van’t Hof said.
Midland Basin producers like Diamondback require an average $61/bbl WTI price to profitably drill a new well, according to first-quarter survey results from the Dallas Fed.
In the deeper Delaware Basin, it’s $62/bbl; other fringier parts of the Permian Basin, $70/bbl.
The collapse in commodity prices came as a surprise after a relatively bullish start to the year, Steddum said. “We didn’t see that as a very real possibility,” he said.
He said TPL is preparing to live with $60/bbl oil “for some longer duration.”
Ever an optimistic group, oil and gas executives remained bullish on oil’s long-term outlook.
Low prices are the cure for low prices, and slowing drilling activity now will beget rising prices in the future.
“If people take the gas pedal off drilling, you are going to have more supply constraints and it’s going to normalize the market,” David Henry, CFO of Calgary-based Freehold Royalties. “So, everything will turn out.”
Freehold is formerly a Canadian pure play, but half of its revenues come from the U.S. today. Freehold made a CA$216 million (US$152 million) Midland Basin mineral acquisition last year.
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