Low prices and macroeconomic uncertainty are putting U.S. energy security in jeopardy, one of the nation’s top oil bosses says.
Diamondback Energy Chairman and CEO Travis Stice didn’t mince words in his quarterly letter to shareholders.
“We believe we are at a tipping point for U.S. oil production at current commodity prices,” Stice wrote in the May 5 letter.
WTI crude prices have collapsed 20% year to date, averaging $58.29/bbl during the week ended May 2.
“On an inflation-adjusted basis, there have only been two quarters since 2004 where front-month oil prices have been as cheap as they are today (excluding 2020 which was impacted by the global pandemic),” Stice wrote.
Diamondback estimates that the U.S. frac crew count is down 15% this year, with the Permian Basin crew count down 20% from a January peak. Both are expected to decline further.
Onshore oil rigs will decline by 10% by the end of the second quarter and fall further in the third.
“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,” he wrote.
“This will have a meaningful impact on our industry and our country.”
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‘Geologic headwinds’
The U.S. shale industry has evolved from startup mode and growth mode into a more mature phase of development, focused on cash flow generation and shareholder returns.
“Over the past decade, the cost of supply for the average barrel of oil produced in the U.S. has increased,” Stice wrote.
U.S. oil production has grown by 8 MMbbl/d to more than 13 MMbbl/d over that time.
But boosting oil output further faces several headwinds. Geologic barriers outweigh the marginal uplifts provided by technological improvements and operating efficiencies.
High-quality drilling inventory is scarce, particularly in the Permian Basin. Permian pure play Diamondback expanded its empire last year with a $26 billion acquisition of private producer Endeavor Energy Resources.
Diamondback followed on earlier this year with a $4.1 billion acquisition of private equity-backed Double Eagle Energy IV. The Double Eagle deal closed April 1.
And on May 1, Diamondback closed a $4.45 billion sale of mineral and royalty interests to its subsidiary Viper Energy.
Tariff uncertainty is also raising producers’ costs. Diamondback’s casing costs, its largest drilling input cost, has increased 10% in the last quarter due to steel tariffs.
“This increases our total well costs by about $6 a foot (~1%), or almost $40 million annually at our current development pace,” Stice wrote.
Caught between low prices and tariff volatility, Diamondback is slashing capex and drilling activity for the rest of the year.
Diamondback lowered its 2025 capex midpoint guidance to $3.6 billion, down from $4 billion previously.
The company will drop three rigs and one completion crew in the second quarter and stay flat through the third quarter.
“To use a driving analogy, we are taking our foot off the accelerator as we approach a red light,” Stice wrote. “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.”
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Precipice of change
Stice will step down as Diamondback’s CEO at the company’s annual shareholder meeting later this month. He will transition to the company’s executive chairman.
Diamondback’s current president, Kaes Van't Hof, will take over the role of CEO.
“Kaes is a generational talent who I have been fortunate enough to have worked with closely for the past decade,” Stice wrote. “The company is in great hands, and the future could not be brighter for Diamondback.”
Stice guided Diamondback through an IPO in October 2012 at a $500 million valuation. The company produced just 3,000 boe/d.
Today, Diamondback has a market value of nearly $40 billion. It produced 475,900 bbl/d of Permian crude in the first quarter.
“We are blessed to live in a country and operate in a state where entrepreneurial spirit is encouraged and nurtured, a place where companies like Diamondback can become the next great American success story,” Stice wrote.
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