(Bloomberg) — Chevron Corp. plans to slow production growth in the largest U.S. oil field next year, in the most definitive sign yet that President-elect Donald Trump faces an uphill battle to boost U.S. energy production.
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Chevron will reduce capital spending in the Permian Basin to between $4.5 billion and $5 billion by 2025, a decline of as much as 10%, the company said in a statement Thursday. Globally, the oil operator expects to spend about $17 billion, down from $19 billion this year in its first cut since 2021.
“Production growth is reduced in favor of free cash flow,” Chevron said in the statement.
The Permian region of West Texas and New Mexico has been one of the world’s fastest growing oil sources for the past decade and is now pumping more than 6 million barrels per day, putting the country ahead of Iraq, the second OPEC producer. Independent drilling companies were the driving force behind the initial shale revolution, but supermajors like Chevron eventually loved the basin’s potential.
The slowdown will be welcome news for the Organization of the Petroleum Exporting Countries and its allies as they struggle to contain a glut of crude from the US and elsewhere that has sent oil prices down 18% since late April decreased. It’s also a reality check for Trump, who has pledged to unleash U.S. oil production as part of his “Drill, Baby, Drill” energy policy, which he promised will halve energy prices.
West Texas Intermediate fell 0.4% to $68.30 in New York on Thursday, bringing its 12-month loss to almost 5.6%. US shale oil is profitable at such prices, but in the absence of more robust demand growth, most managers prefer to return cash to shareholders and grow through acquisitions, rather than spend money ramping up the production.
Chevron still plans to increase production from the Permian next year, but growth will slow significantly from the 15% annual increase since 2021 as the driller approaches its million barrels per day target.
Chief Executive Officer Mike Wirth indicated last month that production from the basin will stop growing and stagnate in the late 2020s to “really open up the free cash flow.” The company’s total U.S. production will likely increase until then, partly due to projects in the Gulf of Mexico in the coming years.
Analysts and traders surveyed by Bloomberg last month saw the U.S. adding just 251,000 barrels of daily production between the end of this year and 2025, which would be the slowest pace since the pandemic-induced decline in 2020. Exxon Mobil Corp. predicted last week that US manufacturing will decline in the coming years as companies focus more on profits than production. Exxon plans to announce its 2025 budget on December 11.
