Permian Production Could Be Plateauing, Occidental Says

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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--Oil production from the Permian Basin is expected to grow for the next two years, though it faces an uncertain future from there, the head of Occidental Petroleum Corporation (NYSE:OXY) (Houston, Texas) said.

With an expected average of 6.5 million barrels per day (BBL/d ) of oil, the Permian Basin is the largest inland oil-producing reservoir in the nation. Those barrels account for about half of the total U.S. crude oil production.

Vicki Hollub, the chief executive officer, director and president of Occidental Petroleum, said in a conference call on first-quarter earnings that Permian production may plateau sooner than expected.

Occidental, she said, had expected Permian production to growth through 2027. Estimates from the Energy Department show Permian oil production is on pace to increase by 2.7% from current levels to average 6.7 million BBL/d. Growth from 2024 to this year, based on current estimates, is set to increase by 3.3%, however.

"It's looking like with the current headwinds or at least volatility and uncertainty around pricing in the economy and recessions and all of that, it's looking like that peak could come sooner," Hollub said Thursday. "So I'm thinking right now the Permian is, if it grows at all through the rest of the year, it's going to be very little."

Volatility and uncertainty stem largely from U.S. President Donald Trump's trade policies, where he's threatened steep tariffs for months, only to reverse course and complicate supply-chain logistics formulated from his original agenda.

Headwinds from U.S. trade policies are in part to blame for a decline in crude oil prices. West Texas Intermediate (WTI), the U.S. benchmark for the price of oil, was trading higher on Friday to reach $60 per barrel on word Trump was considering lowering the tariff pressure on China, though prices remain below the point at which many shale drillers can make a profit.

In an early-year survey of energy firm respondents, the Federal Reserve Bank of Dallas found the sector viewed many of Trump's economic policies as counter-intuitive. A pro-drilling agenda does not make sense in a low-price climate, they said.

Meanwhile, the World Bank said the combination of price volatility and lower prices "spells trouble."

Apart from an uncertain economic future, U.S. shale basins are maturing and changing as a result. After years of drilling, the pressure in the basins drops, trapping heavier hydrocarbons in surface pores while releasing lighter products such as natural gas.

Occidental could be facing its own headwinds should a lower-for-longer price cycle continue. The company reported pre-tax income from its oil and gas operations of $1.7 billion during the first quarter, compared to $1.2 billion during the fourth quarter.

The company attributed the increase to higher commodity prices, noting that it realized an average price for WTI at $71.42 per barrel, a good $11 higher than current levels.

In its short-term market report for May, the U.S. Energy Information Administration (EIA), the statistical arm of the Energy Department, said it expects WTI to average $61.81 per barrel this year, falling to $55.24 by 2026.

Speaking on market prices earlier this week, Diamondback Energy Incorporated (NASDAQ:FANG) (Midland, Texas) , a premier shale player, already said it expected to reduce upstream activity and capital spending this year in response to "recent weakness in commodity prices."

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