Crude oil prices have fallen this week to new four-year lows since the pandemic amid recession fears and unexpected production hikes from OPEC nations and their allies. As a global slowdown spreads throughout every industry, U.S. oil producers are quickly pivoting to drop drilling rigs and cut costs with prices now below the levels for profitability, including key Texas Permian producers Diamondback Energy and Coterra Energy, both of which held their earnings calls May 6.

“We believe we are at a tipping point for U.S. oil production at current commodity prices,” Diamondback chairman and CEO Travis Stice said in a needle-moving shareholder letter prior to the call. “As a result of these activity cuts, it is likely that U.S. onshore oil production has peaked and will begin to decline this quarter.

“This will have a meaningful impact on our industry and our country,” Stice added. As the global economy goes, so to does oil demand.

Diamondback, the largest oil producer focused only on the Permian, has grown into a key bellwether for the industry. Stice’s warning was, in effect, a wake-up call to anyone in the industry yet to heed what was already underway.

The company said it will reduce its drilling rig count by three and cut one of its well completions, or fracking, crews. Diamondback lowered its 2025 midpoint capital expenditure guidance by $400 million down to $3.6 billion, although oil volumes are only expected to fall by 1% because of efficiency gains.

Steel tariffs have increased downhole well costs by more than 10% and contribute to the declining activity levels, Stice said.

Coterra chairman and CEO Tom Jorden said it is likely “tied together” as certain OPEC nations led by Saudi Arabia, and their allies announced a second straight unexpected hike in their production quotas on May 3—at a time when President Trump wants lower oil prices to push gasoline costs down.

“We’re a little over 100 days into this new administration and, ‘Good Lord,’” Jorden said in the May 6 earnings call. “There’s been a tremendous amount of volatility introduced, whether we’re talking about the oil markets or tariffs and our relations around the world. All of these converge on forecasts for oil price. The president is trying to do a lot of difficult things up front, and the White House is in a hurry. We have some sympathy for that sense of urgency.”

The bottom line is Coterra is prepared for this downturn to last for a while, Jorden said.

“We were built for this. Coterra is an ark, not a party boat,” he said.

“We’re hopeful that these tariffs get resolved and this threat of recession gets lifted, but our experience tells us we can’t run our program on hope, and we better be prudent and make adjustments accordingly,” Jorden added. “We are battening down the hatches and expecting this to last a while.”

Because Coterra is focused on both the oily Permian and the gassy Marcellus Shale in Pennsylvania, the company is cutting three of its 10 Permian rigs but adding two rigs to the Marcellus amid healthier natural gas prices. That means reducing Permian capex by $150 million and giving $50 million to the Marcellus.

“This isn’t a situation that shuts our capital program down,” Jorden said. “It just redirects it, and we have some really attractive gas opportunities we can pivot to.”

A maturing industry

The federal government estimates U.S. oil production is sitting near record highs of almost 13.5 million barrels per day, and nearly half of that total comes just from the Permian in West Texas and southeastern New Mexico.

No other country, including Saudi Arabia and Russia, produce much more than 10 million barrels daily.

But the U.S. industry is rapidly consolidating after a record wave of dealmaking in the last two years, and a relatively recent emphasis on capital discipline has ensured the shale oil producers can pivot more quickly to reduce their activity levels—as they’re doing now.

Kimmeridge, an energy private equity firm with an activist angle, released a white paper this week arguing that the maturing Permian is nearing the start of its decline and that producers will look to grow in less active areas, including the Rockies and Canada.

“Despite ongoing hostilities facing a number of the largest energy-producing countries, the world appears to be adequately supplied with both oil and gas,” Kimmeridge’s paper contends. “However, all of the recent energy M&A activity across North America would suggest that producers have an issue with organically finding future onshore inventory, with the cost of undeveloped locations continuing to rise across all the major basins. Thus, here’s the paradox for the midterm outlook for energy supply: North America should not be able to keep growing supply at its historical rates—rates on which the rest of the world has been heavily reliant for the past 15 years.”

Indeed, Diamondback’s Stice said May 6 that efficiency gains now result in “picking up pennies” as opposed to dimes or quarters.

“As capital continues to come out of the investment equation, this decline that we’re on is really going to be magnified,” Stice said. “It’s just where we are in the maturation cycle of depleting these resources.”

And both Diamondback and Coterra are coming off big Permian acquisitions from when oil prices were higher. Diamondback on April 1 closed on its $4.1 billion acquisition of Double Eagle, and that follows its massive $26 billion buy of Endeavor Energy Resources last year. Likewise, Coterra closed in January on its nearly $4 billion in combined acquisitions of Franklin Mountain Energy and Avant Natural Resources.

Diamondback President Kaes Van’t Hof, who is taking on the CEO mantle this year as Stice steps back as executive chair, said more decisions are now being made to “preserve precious inventory”—future drilling opportunities—and not just to save money.

And today’s oil price simply “doesn’t work,” he said.

“The marginal barrel in the U.S. is just not being produced today,” Van’t Hof said. “We’re seeing it already in terms of frac (fracking) activity.

“We don’t have a crystal ball on the rest of the world, but we do have a very good view of what the U.S. looks like. Right now, that’s a business that’s slowing dramatically and likely declining in terms of production.”