“We are at a tipping point for U.S oil production” – Diamondback CEO

Diamondback’s Letter to Stockholders is always a fascinating read. The success of the company has been amazing to watch over the years, from a 3,000 BOE/d producer with a $500 MM valuation in 2012 to a company that just produced 850,700 BOE/d in Q1 with an enterprise value of $USD 52 Billion. As the largest pure play Permian producer, what the company says about trends in the area carries significant weight in the industry.

There were some real nuggets this quarter in what CEO Travis Stice said in his last shareholders letter before moving into the Executive Chairman role and passing the reins on to Kaes Van’t Hof as CEO.

From the Q1 letter:

• “We believe we are at a tipping point for U.S. oil production”
  • Stice mentioned the cost of supply for the average barrel of oil produced in the US increasing over the last decade, and geologic headwinds outweighing efficiency/technology tailwinds going forward. Adjusted for inflation, current commodity prices have been as cheap as they are today in only two quarters since 2004 (excluding the 2020 pandemic).
• “We expect activity to slow and oil production to decline”
  • Stice references the recent selloff in oil prices and estimates that the US frac crew count is already down ~15% this year, with the Permian Basin crew count down ~20% from its January peak, with both expected to decline further.
• “It is likely that U.S. onshore oil production has peaked and will begin to decline this quarter.”
  • Simply put, with commodity prices where they are, no amount of efficiency gain is expected to be able to offset the shrinkage in drilling activity.

Travis Stice leaves us with these thoughts about the future of the US energy industry and (perhaps) worldwide oil production growth rates, along with the positive impacts that the US shale industry has had on the US economy and energy security.

“This will have a meaningful impact on our industry and our country. Over the past 15 years, this industry has grown U.S. oil production by 8 million barrels of oil per day to over 13 million barrels per day, a staggering growth trajectory. This growth alone would make the United States the third largest oil producer in the world. Combining both oil and gas production, the United States today produces more than the second and third largest producers, Russia and Saudi Arabia, combined. This has transformed our economy and given the United States a level of energy security not thought possible at the beginning of this century.

In the process, this industry has pushed employment to over 2 million jobs¹, grown GDP, improved our trade balance and reduced our dependence on foreign oil. This represents the best of American ingenuity, strengthening America’s standing on the world stage while creating millions of high-paying American jobs. In addition, the tax revenue generated from our industry supports education, infrastructure and health care across the country. For example, in 2024 the Texas oil and gas industry sent over $27 billion in tax dollars to Austin. Per TXOGA, this is more than the total tax revenue of 34 states. Today’s prices, volatility and macroeconomic uncertainty have put this progress in jeopardy.”

Amazing stuff. The world will be watching to see what happens next with US oil production and the ripple effects that any unforeseen changes might have on global energy markets.