Shale Producers Prioritize Profit Over Growth

The US presidential election is looming, but the shale oil industry is unlikely to be significantly impacted by the outcome, according to a new analysis by Rystad Energy. Despite the rhetoric and political platforms from the two candidates, Vice President Kamala Harris and former President Donald Trump, the tight oil sector is expected to continue its steady growth, driven more by market forces and company strategy than by government policy. The industry’s focus on profitability and shareholder returns, rather than chasing production growth, means that operators are unlikely to be influenced by promises of support or potential regulations from either candidate.

This shift in strategy, dubbed “Shale 4.0” by Rystad Energy, has been materializing for some time. It is a significant departure from the industry’s growth-at-all-costs approach in the early days of the shale revolution, which was fueled by easy access to capital and a focus on rapid production expansion. However, financial limitations and increasing pressure from investors to prioritize returns have led to a more disciplined approach to growth.

Shale production growth in the US will be driven by a combination of factors, including rising oil prices, improving operator efficiency and increasing long-term investment from acquisitions. While the industry may face challenges in the coming years, including increasing competition from renewable energy sources and growing concerns about climate change, the short-term outlook for shale remains positive.

The US onshore industry has learned to live with a high degree of uncertainty, and the presidential election is just one of many factors on operators’ radars. Shale production has proven to be incredibly resilient, and we expect it to continue to play a major role in the global energy landscape for years to come. At the end of the day, the industry is driven by market fundamentals, not by politics.

Matthew Bernstein, Senior Analyst, Upstream Research

Learn more with Rystad Energy’s Shale Solution.

US shale’s transformation into a more financially sustainable sector has been ongoing for several years, far predating this presidential election cycle. The industry’s growth kickstarted while former President Barack Obama was in office, and later matured during Trump’s term in office, as producers shifted their focus from rapid expansion to financial discipline. Despite some tensions with the Biden administration, the industry has continued to thrive, driven by changing investor attitudes and financial pressures rather than government policy.

Despite his strong vocal support for the oil and gas industry, whether a second Trump administration could actually increase US shale production above its current trajectory is uncertain. The industry’s shift towards prioritizing shareholder returns and long-term growth through acquisitions has led to a more disciplined approach to investment. This means that even if prices rise, companies are unlikely to significantly increase spending, as production has somewhat decoupled from oil and gas prices. As a result, the traditional link between high prices and increased drilling activity has been weakened, with companies instead focusing on maintaining capital discipline and maximizing returns.

A Democratic administration could pose potential risks, but these seem highly unlikely for political and economic reasons. Past administrations may have imposed stricter regulations, drilling restrictions and heightened scrutiny of mergers and acquisitions, but Harris has not communicated a desire to pursue these options. The industry is also concerned about accelerated investment in alternative energy projects, which could accelerate the transition away from fossil fuels. A ban on new permitting on federal land, while unlikely, would have a significant impact on production in key basins such as the Permian Delaware.

Increased investments in clean energy alternatives may be a concern in the long term, but the short-term impact is unlikely to be significant for two reasons. One, US consumers prefer an oil and energy-intensive lifestyle, and for this energy to come at a low cost. Despite policy support for electric vehicles (EV), wind and solar generation and most recently hydrogen, US oil consumption has only flattened, not declined. Domestic natural gas consumption continues to climb. And two, oil prices are set on a global market — even if US oil consumption were to decline, lower prices would likely stimulate oil demand elsewhere.

Helped by recent high-profile mergers and acquisitions (M&A), US shale’s output growth is becoming increasingly concentrated in the hands of a few large players. The research shows that the top six companies in the Permian Basin, the largest shale play in the US, now control over 60% of the remaining commercial net oil resources in the region. This consolidation is likely to continue, as smaller players struggle to compete with the scale and efficiency of their larger rivals. The industry is rapidly becoming a game of scale, and only the largest and most efficient players will be able to compete in the long term.

By Rystad Energy

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