Shale Oil Boom Drives Record U.S. Production On Tuesday, the U.S. Energy Information Administration's monthly report revealed that U.S. crude oil production hit a historic high in August, reaching 13.05 million barrels per day, with a total production of 404.6 million barrels. This surpasses the previous record set in July at 401.73 million barrels.
A breakdown by production regions shows growth in all four U.S. petroleum districts (PADD). The largest percentage increase was in PADD 4, which includes states like Colorado and Idaho, while the most significant actual growth was in PADD 2, encompassing states such as North Dakota, Illinois, and Kentucky.
Although the Permian Basin in PADD 3 didn't have the largest growth rate, it alone contributed to over 60% of U.S. crude oil production. This month, Texas, a primary region in the Permian Basin, increased its crude oil production from 173.775 million barrels to 174.562 million barrels, accounting for 43% of the nation's output.
The Permian Basin, one of the U.S.'s largest oil-producing regions and a major shale oil area, experienced a decline in production after its peak as a significant traditional oil field in the 1970s. However, the shale oil revolution post-2005 revitalized the basin.
Shale oil has played a pivotal role in transforming the U.S. from the world's largest oil importer to its largest exporter. Goldman Sachs commodities analyst Daan Dtruyven recently noted that the U.S. has driven all global oil supply growth over the past decade and year. Since early 2020, the Permian Basin has propelled all U.S. crude oil supply growth.
The growth rate of U.S. crude oil supply has also exceeded expectations. Goldman Sachs stated that, except for 2016 and 2020, U.S. crude oil supply will surpass the International Energy Agency's (IEA) projections for the 13th consecutive year.
Goldman Sachs also highlighted that despite the rising oil prices and pressures from the government and other entities to increase production, U.S. oil producers continue to maintain "capital discipline," meaning they will keep capital expenditures low.
Firstly, publicly traded independent companies have adhered to their moderate single-digit growth targets announced in 2020-2021.
Goldman Sachs anticipates that the growth in crude oil production for independent U.S. energy companies under its coverage will slow from about 235,000 barrels per day (or 7%) in 2023 to 135,000 barrels per day (4%) in 2024, reaching only around 90,000 barrels per day (2.5%) by 2025.
Secondly, the reinvestment rates of publicly traded producers remain within the 40-60% range, significantly below historical averages. The increase in capital expenditures in 2022-2023 mainly stems from potentially low levels in 2020-2021 and is influenced by cost inflation.
Lastly, publicly traded energy companies' broader capital allocation strategies continue to focus on limiting leverage and returning cash to shareholders. Currently, oil companies typically use equity (rather than debt) for acquisitions (e.g., ExxonMobil's acquisition of Pioneer).
Analysts and traders believe that large enterprises in the vast Permian Basin spanning Texas and New Mexico might be the next acquisition targets. Smaller publicly traded Permian specialists like Permian Resources and Matador Energy have been identified as potential targets.
In October, oil giants ExxonMobil and Chevron both initiated acquisitions of oil extraction companies. Analysts believe these moves will trigger consolidation across the industry.
Pete Bowden, Global Head of Energy Banking at Jefferies, commented that such large transactions often appear in clusters. Most importantly, as the supermajors grow even larger, everyone else must consider strategies to maintain their relevance. He anticipates more deals to occur in the future.
