U.S. Oil Production Has ‘Likely Peaked,’ Says Diamondback Energy (FANG) CEO

The chief executive officer of Diamondback Energy (FANG) says that U.S. onshore oil production has likely peaked and will begin to decline alongside crude oil prices.

Diamondback CEO Travis Stice made the comments in a letter to shareholders, saying that America’s position as the world’s largest fossil fuel producer and its energy security are in jeopardy due to falling prices.

U.S. crude oil prices have declined 17% this year amid fears of an economic recession and are currently at $59.52 per barrel. At the same time, OPEC+ producers led by Saudi Arabia are rapidly increasing supply, potentially swamping the global market and lowering prices further.

“We believe we are at a tipping point for U.S. oil production at current commodity prices,” wrote Stice. “It is likely that U.S. onshore oil production has peaked and will begin to decline this quarter.”

Scaling Back Production

Diamondback is an independent oil and gas producer focused on the Permian Basin in the southern U.S., the largest oil patch in America. The company is the third-biggest oil producer in the Permian Basin and the sixth biggest in the continental U.S.

Shale oil production over the last 15 years has transformed the U.S. into the largest fossil fuel producer in the world, with the country producing more oil and gas than Saudi Arabia and Russia combined. However, Stice says U.S. energy security is now at risk. “Today’s prices, volatility and macroeconomic uncertainty have put this progress in jeopardy,” wrote the CEO.

As crude oil prices continue to sink, it is likely to lead oil producers such as Diamondback Energy to scale back production within the U.S. The number of crews fracking shale for oil and gas has fallen 15% this year with crews in the Permian Basin down 20% from a peak in January, notes Diamondback Energy.

Diamondback itself has cut its capital budget by about $400 million this year, noting that import tariffs have increased oil well costs by about 1% or $40 million annually. The stock of Diamondback Energy has declined 20% this year.

Is FANG Stock a Buy?

The stock of Diamondback Energy has a consensus Strong Buy rating among 24 Wall Street analysts. That rating is based on 22 Buy and two Hold recommendations issued in the last three months. The average FANG price target of $186.88 implies 43.54% upside from current levels.

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