Press News
U.S.
oil and natural gas firms have a message for President Donald Trump: his energy
and tariff policies are creating chaos and his “drill, baby, drill” mantra is
“a myth,” according to a new Dallas Fed survey of 130 energy firms in Texas,
New Mexico and Louisiana. Firms weighed in on the impact of Trump administration
policies in just the first few months of his second term after rig counts have
dropped, layoffs have increased and operating costs continue to go up. The Fed’s first-quarter energy survey measured the
condition of energy firms located in its district. Its company outlook index
decreased 12 points, “suggesting slight pessimism among firms;” its outlook
uncertainty index increased by 21 points. Of the 130 energy firms surveyed, 88 are in exploration
and production (E&P); 42 are in oilfield services. Their average
operational cost per barrel is $45, and firms “need $65 per barrel on average
to profitably drill,” the Fed notes. The WTI was at $63 a barrel as of Tuesday. The amount of debt and investment needed to explore and
drill new wells isn’t feasible with oil prices dropping and overall economic
uncertainty, industry executives argue. Costs have increased across the board, firms said, with the
most being legal and administrative in order to comply with a plethora of
regulations, energy firms said. Although the Trump administration is reducing
federal regulatory burdens, 40 percent of companies surveyed said they didn’t
expect their regulatory compliance costs to go down; 21 percent said they
expect them to go up.
“The key word to describe 2025 so far is ‘uncertainty’
and as a public company, our investors hate uncertainty,” one E&P executive
said, according to the survey. “This has led to a marked increase in the
implied cost of capital of our business, with public energy stocks down
significantly more than oil prices over the last two months. This uncertainty
is being caused by the conflicting messages coming from the new administration.
“There cannot be ‘U.S. energy dominance’ and $50 per
barrel oil; those two statements are contradictory. At $50-per-barrel oil, we
will see U.S. oil production start to decline immediately and likely
significantly (1 million barrels per day plus within a couple quarters). This
is not ‘energy dominance.’ The U.S. oil cost curve is in a different place than
it was five years ago; $70 per barrel is the new $50 per barrel.” Another said, “First, trade and tariff uncertainty are
making planning difficult. Second, I urge the administration to engage with
U.S. steel executives to boost domestic production and introduce new steel
specs. This will help lower domestic steel prices, which have risen over 30
percent in one month in anticipation of tariffs.”
“The administration's chaos is a disaster for the
commodity markets. ‘Drill, baby, drill’ is nothing short of a myth and populist
rallying cry. Tariff policy is impossible for us to predict and doesn't have a
clear goal. We want more stability,” another said.
“The disconnection of oil and natural
gas markets, specifically commodity pricing, seems to be causing a
feast-or-famine effect on the industry,” another said. “Companies with
natural-gas-weighted assets will spend more money in 2025 developing their
assets, but oil-weighted companies will decrease capital spending with the
current pressure on oil pricing for 2025.” Still another said, “The administration’s tariffs
immediately increased the cost of our casing and tubing by 25 percent even
though inventory costs our pipe brokers less. U.S. tubular manufacturers
immediately raised their prices to reflect the anticipated tariffs on steel.
The threat of $50 oil prices by the administration has caused our firm to
reduce its 2025 and 2026 capital expenditures. 'Drill, baby, drill' does not
work with $50 per barrel oil. Rigs will get dropped, employment in the oil
industry will decrease, and U.S. oil production will decline as it did during
COVID-19.” One Texas-based E&P firm said, “for the average onshore
upstream operator, the current administration versus the previous
administration regulatory regime shows no real change at all. We still get our
permits from the Railroad Commission in Texas, for example, not the
Environmental Protection Agency. The federal regulatory regime matters if you
are operating in the Gulf of Mexico or Alaska but not for the Permian, Eagle
Ford, Bakken, Utica, etc.” Others pointed out that the Trump administration asking
OPEC+ countries to increase crude production “hurts domestic operators.”
Another said, “The rig count is flat and scrap prices are
up. Time to scrap more rigs; there are lots of rigs that will never go back to
work.”
“I have never felt more uncertainty
about our business in my entire 40-plus-year career,” another said.