With just a week to go before U.S. President-elect Donald Trump ascends into the Oval Office for a second term, the oil and gas industry will be watching keenly to see what measures he will adopt to achieve his “Drill, Baby, Drill” agenda. Trump says he’ll push shale producers to ramp up output, even if it means operators “drill themselves out of business.” However, it’s not clear he intends to accomplish this feat since U.S. oil is produced by independent companies and not a national oil company (NOC). Exxon Mobil’s (NYSE:XOM) Upstream President Liam Mallon recently dismissed the notion that U.S. producers will dramatically increase output under a second Trump term.
“I think a radical change is unlikely because the vast majority, if not everybody, is primarily focused on the economics of what they’re doing,” Mallon said last week at a conference in London.
However, an even bigger factor is likely to override oil companies’ attempts to rapidly ramp up U.S. oil output: falling profits. Two years ago, the Biden administration urged U.S. companies to increase production in a bid to bring down fuel prices. Back then, oil prices were hovering around $100 per barrel and oil companies were raking in record profits. However, last year witnessed a sharp slowdown in non-OPEC+ supply growth from 2.46 mb/d in 2023 to 0.79 mb/d in 2024, primarily caused by a reduction in U.S. total liquids growth from 1.605 mb/d in 2023 to 734 kb/d in 2024, with low oil prices disincentivizing more drilling. StanChart expects this trend to continue, with U.S. liquids growth expected to clock in at just 367 kb/d in 2025 before slowing down further to 151 kb/d in 2026.
Over the past five years, oil and gas companies have been returning a big chunk of their profits to shareholders in the form of dividends and share buybacks. With oil prices declining over the past two years, these companies have resorted to borrowing more to keep their shareholders happy. Indeed, Bloomberg reported in late October that four of the world’s five oil “supermajors” saw fit to borrow $15 billion to fund share buybacks between July and September. According to a Bloomberg analysis, ExxonMobil (NYSE:XOM), Chevron (NYSE:CVX), TotalÉnergies (NYSE:TTE), and BP (NYSE:BP) wouldn’t have enough cash on hand to cover the dividends and share buybacks their investors are demanding, let alone increase their capital expenditure to drill more.
“Borrowing to buy back shares isn’t uncommon in the oil business,” Bloomberg explained. “But a dimming outlook for oil prices next year means the cash shortfall is apt to continue over the longer term,” at a time when investors’ expectations for immediate returns continue.
Changing Dynamics
There are other structural and technical challenges that could limit how quickly the U.S. Shale Patch increases oil production under Trump. According to commodity experts at Standard Chartered, U.S oil production, and particularly unconventional (shale oil) production, has changed significantly from the time Trump first took office in 2017. StanChart points out that U.S. crude output clocked in at 13.40 million barrels per day (mb/d) in August 2024, an all-time high above the previous record of 3.31 mb/d set in December 2023. U.S. crude production has increased by 4.7 mb/d since the pandemic-era low of May 2020; however, it’s just 0.4 mb/d higher than the pre-pandemic high of November 2019, working out to an annual production growth rate of just 80 thousand barrels per day (kb/d) over this timeframe.
StanChart notes that the dynamics of U.S. shale oil production make long-term supply increases difficult to maintain, noting that the country’s oil production is dominated by a few majors and independent producers, alongside private companies, rather than a national oil company as is often the case with many OPEC producers. These companies have largely left behind their trigger-happy, drill-baby-drill days and adopted strict capital discipline, eschewing rapid production increases in favor of returning more capital to shareholders in the form of dividends and share buybacks. StanChart also points out that extensive M&A activity in the sector has reduced the number of operating companies, changing the landscape from a patchwork of small producer acreages to larger contiguous acreage. This new modus operandi allows for complex drilling and completion techniques, including multi-pad wells with extremely long lateral sections that are able to optimize spacing and associated infrastructure. These drilling and completion efficiency gains have allowed production to continue growing despite a decline in rig count.
StanChart’s views appear to match those of Goldman Sachs’. According to GS, technological and efficiency gains have accounted for virtually all growth by the Texas-New Mexico shale basin since 2020; however, the bank has warned that “the Permian is maturing, and its deteriorating geology will weigh on the production of crude oil down the road.” The Permian rig count has declined nearly 15% from last year’s April high to 309 currently, and is 30% lower than its 2018-2019 average, Goldman Sachs has revealed. GS has predicted that the Permian rig count will be below 300 by the end of 2025.
Different Profile
To cement its bullish stance, StanChart has also pointed out that shale oil has a different production profile to conventional oil. Whereas shale oil production is brought onstream rapidly, peak production is only maintained for a relatively brief period, usually a couple of months, following which hyperbolic decline sets in. The rate of decline is determined by several factors, including reservoir characteristics, completion techniques and production drawdown, but can be between 40-80%. Such high decline rates and short production profiles mean that new production must be continually brought onstream, the so-called ‘Red Queen effect’. Effectively managed, StanChart has predicted that U.S. supply will stabilize at current prices.
Further discouraging large increases in production are incoming tariffs. Back in 2018, Trump imposed 25% tariffs on certain imports of steel and 10% on aluminum. He has pledged to impose massive tariffs of as much as 60% on imported products. Steel is used throughout the drilling and production phases, with treated steel required for drilling equipment, pumps, pipes and tubes. US oil producers have cited various cost pressures as significant headwinds to growth in many recent industry surveys. These costs are significant for new projects considering that the majority of steel piping used for oil and gas drilling and pipeline infrastructure is imported.
Finally, Trump is likely to open up Federal land for exploration and production. However, StanChart has noted that the timeframe required from licensing, to exploration and appraisal, and eventual production is multi-year, meaning any production from federal lands would likely come after his four-year term is over.
