Oil Executives Predict US Production Dip If Acquisition Spree Continues

To divine the future of the US oil and gas industry, energy geeks eagerly await the quarterly survey by the Federal Reserve Bank of Dallas, which polls around 140 energy firm executives in Texas, northern Louisiana, and southern New Mexico.

It’s mostly read for its inclusion of anonymous comments; CEOs can speak candidly about issues impacting their business. So what’s on their minds? 

Crude Consolidation

Over half of US oil executives surveyed say the ongoing wave of mergers and acquisitions could squeeze US oil production if deals keep flowing.

The first quarter of 2024 saw more than $50 billion in US oil and gas industry mergers and acquisitions announced, continuing a trend from last year’s $192 billion in deals, which included ExxonMobil’s now-FTC-approved $60 billion takeover of Pioneer. Almost two-thirds of the deals in Q1 involved assets in the Permian Basin, the highest-producing oil field in the country. It stretches across western Texas and southeastern New Mexico.

A question in the Dallas Fed’s survey about how oil production would be impacted if “there were continuing industry consolidation” over the next five years led to some venting: 

• 48% said they believe US oil output will be “slightly lower,” while 6% foresee “significantly lower” production. 
• “The last few years of mergers and acquisitions have decreased activity in the oil patch,” said one anonymous executive. “The majors are not going to exhaust reserves to raise domestic production until supply and demand curves meet their goals. They do not have to participate in treadmill drilling to keep incomes at a pace to develop reserves and pay back loans.”

Another executive predicted insolvent oil service companies: “Oil and gas operator consolidation is squeezing an over-supplied vendor market for all services, which will require consolidation or extensive bankruptcy in the vendor pool to rightsize the market.”

Stale Shale: Oil and gas production remained essentially unchanged in the second quarter, according to the survey. The US Energy Information Administration said earlier this month that it expects oil output to grow by around 310,000 barrels per day to 13.2 million this year, considerably less than the 1 million per day increase last year.