U.S. Shale Oil Companies Drill 50% Fewer Wells Due to Tariffs, Price Decline

The Dallas Federal Reserve has released a report indicating that the number of oil wells drilled by U.S. shale oil companies this year will be significantly lower than initially planned. The report, based on a survey, reveals that nearly half of the executives anticipate that the number of wells drilled by 2025 will be less than what was projected at the beginning of the year. Additionally, 42% of large exploration and production companies expect a substantial reduction in drilling activities. The primary factors contributing to this slowdown are the impact of tariffs on drilling and completion costs, as well as the overall decline in oil prices. The uncertainty surrounding the tariff policies implemented by the Trump administration has further exacerbated the financial strain on these companies, leading to a more conservative approach in their drilling plans.

This shift in strategy underscores the challenges faced by the shale oil industry in the current economic climate, where external factors such as tariffs and fluctuating oil prices play a crucial role in shaping the industry's future. The report highlights that the tariffs have increased the costs of drilling and completing new wells by 4.01% to 6%. This financial burden, coupled with the decline in oil prices, has made it difficult for companies to maintain profitability. The situation is further complicated by the fact that the Organization of the Petroleum Exporting Countries (OPEC+) is increasing its production to fill the supply gap, which could lead to an oversupply in the market.

One anonymous executive commented on the situation, stating that it is difficult to imagine the extent to which the policies and statements from Washington will impact the U.S. oil exploration and production companies. The executive noted that while the government had promised to create a better environment for producers, the reality is that OPEC is benefiting from the current situation while the domestic industry is suffering. This sentiment is echoed by many in the industry, who are concerned about the long-term viability of their operations under the current economic conditions.

Most of the executives surveyed also expressed concern that the tariffs on imported steel will have a negative impact on customer demand over the next 12 months. Some executives called for increased production by U.S. steel manufacturers, as the uncertainty surrounding the pricing of critical steel pipes is hindering drilling activities. Additionally, one respondent noted that for service companies, the tariffs mean they will have to pass on the increased costs to their customers. This further complicates the financial situation for many companies in the industry, as they struggle to maintain profitability in the face of rising costs and declining oil prices.

The Dallas Federal Reserve's quarterly survey report is closely watched because it includes anonymous comments that provide a realistic reflection of the various factors affecting the oil industry. The bank's coverage area includes Texas, northern Louisiana, and southern New Mexico. One respondent described the current market conditions as "very severe," noting that most companies are paying contractors far less than what is needed to maintain profitability. This situation is particularly challenging for oil service companies, which are often the first to feel the effects of a downturn in the industry. One oil industry executive noted that some of their suppliers may not survive the current difficulties.

An executive from an oil service company highlighted the challenges faced by their clients, the exploration and production companies. The executive noted that while these companies claim to want to cooperate, their treatment of suppliers is often poor, pushing oilfield service companies to unsustainable profitability levels. This dynamic further complicates the financial situation for many companies in the industry, as they struggle to maintain profitability in the face of rising costs and declining oil prices. The overall sentiment in the industry is one of caution and concern, as companies navigate the challenges posed by tariffs, declining oil prices, and increasing competition from OPEC+.