U.S. Oil Rig Count Sinks to Five-Month Low Amid Strategic Shifts in Energy Sector

The U.S. oil and gas rig count has fallen to its lowest level in five months, according to Baker Hughes’ latest data, signaling a renewed wave of caution in an industry grappling with price volatility, geopolitical tensions, and strategic shifts toward shareholder returns over production growth.

As of early May 2025, the total rig count dropped to 578, down six from the prior week and marking the lowest level since January. This represents a 4% decline year-over-year, underscoring a broader trend of reduced drilling activity that has seen rig counts fall by 5% in 2024 and 20% in 2023. The decline is most pronounced in oil-focused regions like the Permian Basin, Texas, and New Mexico, where producers are scaling back amid weak crude prices and policy uncertainty.

Regional Declines Highlight Industry Challenges

The Permian Basin, the largest U.S. shale oil-producing region, now operates at 285 active rigs, its lowest level since December 2021. Texas, the top energy-producing state, saw its rig count drop to 271, also a five-month low. In New Mexico, rigs fell by four to 96, the lowest since April 2022. Even the Gulf of Mexico, a key offshore hub, lost three rigs, reducing its total to nine—a level not seen since September 2021.

The data reflects a sector prioritizing financial discipline over expansion. Crude prices had dropped 20% during the first 100 days of President Trump’s second term, reaching levels last seen during the pandemic. This slump, exacerbated by tariff-driven geopolitical tensions, has intensified pressure on drillers to curb spending and preserve cash.

Major Producers Hold Steady, Smaller Players Retreat

While majors like ExxonMobil and Chevron have maintained capital spending plans, smaller exploration firms are cutting back sharply. Exxon reaffirmed its 2025 guidance of $27–$29 billion in capital expenditures, while Chevron reported a 12% year-over-year increase in Permian production for Q1 2025. However, independents such as Diamondback Energy, Coterra Energy, and Matador Resources are reducing rigs in response to weak prices. Diamondback plans to cut three Permian rigs in Q2, with further reductions possible if oil prices dip further.

The divergence in strategy is reflected in equity performance. While Exxon and Chevron’s stocks have held relatively stable, smaller players like Diamondback and Matador have seen significant declines, down 22% and 34%, respectively, over the past year.

Natural Gas: A Mixed Picture

Gas rig counts held steady at 101, but the sector faces its own headwinds. The U.S. Energy Information Administration (EIA) projects spot gas prices to rise 88% in 2025, which could incentivize drilling after a 14% price drop in 2024 forced output cuts. However, gas production is still expected to reach only 104.9 billion cubic feet per day (bcfd) in 2025—below 2023’s record 103.6 bcfd due to lingering demand concerns.

What This Means for Investors

The rig count decline underscores a sector increasingly focused on cost control and shareholder returns. While the EIA forecasts a modest rise in U.S. crude output to 13.4 million barrels per day (bpd) in 2025—up slightly from 2024’s record 13.2 million bpd—this growth is slower than earlier projections, reflecting weaker global demand and trade-related headwinds.

Investors should prioritize financially robust majors like Exxon and Chevron, which have the scale to weather price swings and maintain dividends. Smaller E&Ps, however, face significant risks, especially if oil prices remain depressed. The data also highlights a sector-wide shift toward capital discipline, with drillers opting to return cash to shareholders over expanding production.

Conclusion: A Sector in Transition

The U.S. rig count’s five-month low is a stark indicator of the energy sector’s evolution. With prices volatile and geopolitical risks high, drillers are prioritizing balance sheets over output—a trend that will likely persist unless crude prices rebound meaningfully.

For investors, the path forward hinges on monitoring two critical metrics:
1. Crude prices: A sustained rebound above $80/barrel could revive drilling activity.
2. E&P capital allocation: Companies cutting rigs or dividends may signal further sector consolidation.

The EIA’s projection of 13.4 million bpd in 2025 assumes only modest growth, and the rig count’s decline suggests even this may be optimistic. Until market conditions stabilize, the energy sector will remain a tale of two industries: majors with staying power and smaller players at risk of falling further behind.

In this environment, investors should favor dividend-paying majors and avoid overexposure to smaller E&Ps lacking financial flexibility. The rig count’s downward trajectory is a clear reminder: in energy, prudence often outlasts ambition.