US Oil Makers Dial Back Spending as Shale Producers Prioritize Profits

US oil growth is facing headwinds as major shale producers cut capital spending to prioritize shareholder returns and debt repayment over accelerating production. Chevron Corp. and ConocoPhillips have reduced their expenditure in the Lower 48 by 10% in the first six months of the year, while Occidental Petroleum Corp. has cut spending in the Permian Basin by 20%. APA Corp., Matador Resources Co., and HighPeak Energy Inc. are also on track to spend less on drilling and fracking in the US than a year ago.

Despite lower spending, gains in drilling and fracking techniques mean most operators are producing more oil for every dollar spent. However, this shift towards efficiency gains is dampening US crude supply growth, particularly when compared to past years. The trend has caught the attention of President Donald Trump, who is criticizing the industry for not bringing down gasoline prices at the pump fast enough.

According to the US Energy Information Administration, the country's oil production will grow by about 200,000 barrels a day this year to 13.8 million barrels a day. However, operators are not drilling as frenetically as they did when oil prices spiked in the past. Diamondback Energy Inc., on the other hand, plans to increase capital spending to lift production after the Iran war sent oil prices surging.

Chevron's 'plateau' strategy is being implemented in the Permian Basin of West Texas and New Mexico, where production has hovered around 1 million barrels of oil equivalent a day for the last five quarters. The company expects to generate $7 billion a year of free cash flow from these basins through 2030, enough to fund half of its annual dividend.

ConocoPhillips' incoming CEO Andy O'Brien emphasized that future investments will be for 'modest growth', and not for aggressive production expansion. The company's Lower 48 production has hovered around 1.5 million barrels a day for the past six quarters, with growth in the Permian offset by declines in older shale basins.