U.S. oil production growth will stall if prices stay near $60 per barrel, as fewer drilling sites are profitable at that level, the CEO of Diamondback Energy, one of the country’s top oil producers, said on Wednesday.
“There’s only so much Tier 1 rock,” Kaes Van’t Hof said while speaking at an energy conference in Austin, in a reference to the best drilling locations. “That means that it’s going to be hard to see growth at $60 oil. And at $50, I think that’s an even harder story.” U.S. crude futures were trading around $61.50 a barrel on Wednesday morning.
Many energy companies have announced thousands of job cuts this year to keep a lid on spending as lower oil prices and higher costs have pushed down profits. Exxon Mobil said on Tuesday it will lay off 2,000 workers globally, while Chevron said in February that it would lay off up to 20% of its global workforce. ConocoPhillips also said earlier this month it would cut 20% to 25% of employees.
Diamondback, the top independent producer in the Permian shale basin, said in May that it believes shale has neared its peak at current oil prices. The Midland, Texas-based company slashed its 2025 capital spending plans by $500 million to $3.5 billion from its original guidance.
“I still stand by that,” Van’t Hof said. “On an inflation-adjusted basis, $60 oil today is $45 oil six or seven years ago.”
Investor push to return money through dividends and buybacks has also changed company strategies with more incremental cash flow directed to shareholder returns, Van’t Hof added.
(Reporting by Arathy Somasekhar in Houston Editing by Marguerita Choy)