Shale producers prioritize profits over growth

The US presidential election is just around the corner, but the shale oil industry is unlikely to be significantly affected by the outcome, according to a new analysis from Rystad Energy. Despite the rhetoric and policy platforms of the two candidates, Vice President Kamala Harris and former President Donald Trump, the cash-strapped oil sector is expected to continue its steady growth, driven more by market forces and business strategy than by government policy. The industry’s focus on profitability and shareholder returns, rather than chasing output growth, means operators are unlikely to be swayed by promises of support or potential regulation from either candidate.

This change in strategy, which Rystad Energy calls “Shale 4.0,” has been happening for a while. It’s a significant departure from the industry’s growth-at-all-costs approach in the early days of the shale revolution, fueled by easy access to capital and a focus on rapid production expansion. However, financial constraints and increasing pressure from investors to prioritize returns have led to a more disciplined approach to growth.

US shale production growth will be driven by a combination of factors, including rising oil prices, improved operator efficiency and increasing long-term investment from acquisitions. While the sector may face challenges in the coming years, including increasing competition from renewable energy sources and growing concerns about climate change, the short-term outlook for shale oil remains positive.

The US onshore industry has learned to live with a high degree of uncertainty, and the presidential election is just one of many factors on operators’ radar. Shale production has proven incredibly resilient and we expect it to continue to play an important role in the global energy landscape in the coming years. Ultimately, the sector is driven by market fundamentals, not politics.

Matthew Bernstein, senior analyst, upstream research

Learn more with Rystad Energy’s Shale solution.

The transformation of the US shale gas sector into a more financially sustainable sector has been underway for several years, well before this presidential election cycle. The industry’s growth took off when former President Barack Obama was in office, and later blossomed during Trump’s term, as manufacturers shifted their focus from rapid expansion to financial discipline. Despite some tensions with the Biden administration, the sector has continued to thrive, driven by changing investor attitudes and financial pressures rather than government policy.

Despite his strong vocal support for the oil and gas industry, it is uncertain whether a second Trump administration could actually increase U.S. shale production above current levels. The industry’s shift towards prioritizing shareholder returns and long-term growth through acquisitions has led to a more disciplined investment approach. This means that even if prices rise, companies are unlikely to significantly increase spending because production is somewhat decoupled from oil and gas prices. As a result, the traditional link between high prices and increased drilling activity has weakened, with companies focusing instead on maintaining capital discipline and maximizing returns.

A democratic government could bring potential risks, but these seem highly unlikely for political and economic reasons. Past governments may have imposed stricter regulations, drilling restrictions and increased scrutiny of mergers and acquisitions, but Harris has expressed no desire to pursue these options. The industry is also concerned about accelerated investments in alternative energy projects, which could accelerate the transition away from fossil fuels. A ban on new permits for federal lands, while unlikely, would have a significant impact on production in key watersheds such as the Permian Delaware.

Increased investment in clean energy alternatives may be a problem in the long term, but the short-term impact is unlikely to be significant for two reasons. First, American consumers prefer an oil- and energy-intensive lifestyle, and that this energy should be cheap. Despite policy support for electric vehicles (EV), wind and solar power generation and, most recently, hydrogen, US oil consumption has only leveled off, not decreased. Domestic natural gas consumption continues to rise. And secondly, oil prices are determined on the world market. Even if U.S. oil consumption were to decline, lower prices would likely boost demand for oil elsewhere.

Aided by recent high-profile mergers and acquisitions (M&A), US shale oil production growth is becoming increasingly concentrated in the hands of a few major players. The study shows that the six largest companies in the Permian Basin, the largest shale gas company in the US, now control more than 60% of the region’s remaining commercial net oil supplies. This consolidation is likely to continue as smaller players struggle to compete with the size and efficiency of their larger rivals. The industry is quickly becoming a game of scale, and only the largest and most efficient players will be able to compete in the long term.