US President Donald Trump’s announcement of sweeping tariffs on 2 April sent shockwaves across the globe, with the stock market witnessing its second lowest trading day since 2020. In the current price environment, Rystad Energy predicts significant risks to US operators who could be forced to bring down their pace of production growth.
Here is Rystad Energy’s oil market update from Matthew Bernstein, Vice President, North American Oil and Gas:
“The corporate reality for public players means that already modest growth could be at risk if prices remain near US$60/bbl.
Rystad estimates that the new ‘all-in’ breakeven cost for many US oil players is now above US$62, which includes higher hurdle rates, dividend payments and debt service costs.
With Lower-48 production growth already unlikely outside the Permian, a downshift in the country’s most prolific oil basin would decelerate the rate of production growth in 2025, should prices remain subdued.
The business model embraced by US oil producers over the past several years becomes far more difficult to maintain with prices below this level.
This means that some combination of near-term activity levels, investor payouts or inventory preservation will need to be sacrificed in order to defend margins.
While different companies have different sensitivity to the above factors, activity and production will be threatened the most.”
While the impact on 2025 well costs from steel tariffs may be relatively limited, the policy whiplash created an environment of uncertainty that management teams found difficult to operate in.
Nearly all US Lower 48 oil growth this year is pegged to come from the Permian basin.
While Permian break-evens are the most commercial, E&Ps have promised high dividends, putting the Permian’s growth at risk for operators with less lucrative acreage.
Rystad Energy believes that mid-cap public players in the Permian, specifically the Delaware basin, are especially at risk in a prolonged period of oil prices in the low US$60s.
This is due to the fact that these operators here are faced with steep first-year production declines, high well costs and hefty capital return requirements, while also operating in an environment where large players have consolidated much of the most commercial inventory.