Diamondback Energy CEO: “Likely that U.S. onshore oil production has peaked”

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U.S. onshore oil production has likely peaked and will start to decline due to the recent plunge in crude prices, jeopardizing the nation's position as the world's largest fossil fuel producer and its energy security, the CEO of Diamondback Energy told shareholders in a letter this week.

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Adjusted for inflation, there have only been two quarters since 2004 when front-month oil prices have been as cheap as they are now, excluding 2020 when the Covid-19 pandemic swept the world, Diamondback CEO Travis Stice wrote.

"Therefore, we believe we are at a tipping point for U.S. oil production at current commodity prices," Stice warned the company's shareholders in a letter published Monday. "It is likely that U.S. onshore oil production has peaked and will begin to decline this quarter," Stice told investors in his letter, pointing to cuts in activity levels.

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The shale revolution over the past 15 years has transformed the U.S. into the largest fossil fuel producer in the world, with the country pumping more oil and gas than Saudi Arabia and Russia combined, the CEO said.

"This has transformed our economy and given the United States a level of energy security not thought possible at the beginning of this century," Stice told investors. "Today's prices, volatility and macroeconomic uncertainty have put this progress in jeopardy," the CEO warned.

Depending on how much oil prices fall, the amount of capital needed for the U.S. to produce 13 million barrels per day and for the Permian to produce 6 million bpd "might be an untenable lift for the business model that we put in place, where we're returning so much back to our investors who own the company," Stice told analysts on Diamondback's earnings call Tuesday morning.

"We don't have a crystal ball in the rest of the world, but we have a very good view of what the U.S. looks like, and right now, that's a business that's slowing dramatically and likely declining in terms of production," Stice said.

The number of crews fracking shale for oil and gas has already fallen 15% this year with crews in the Permian Basin down 20% from a peak in January, Stice estimated, warning that number of crews will likely decline further.

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"To use a driving analogy, we are taking our foot off the accelerator as we approach a red light," Stice said. "If the light turns green before we get to the stoplight, we will hit the gas again, but we are also prepared to brake if needed."

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