ConocoPhillips, Shell, Chevron, bp, and ExxonMobil have announced major layoffs. Mostly these cuts reflect strategic adjustments rather than a retreat from upstream operations.
Each company has reasons for downsizing. bp will reduce convenience store, EV charging, lubricant, aviation midstream, refining, oil trading, and renewable divisions. Shell will shed low-grade petroleum projects and trim its low-carbon solutions unit. Other companies are streamlining operations after mergers.
Several companies significantly increased headcount after COVID but did not see increased returns. One operator, I’ve been told, hired data analytics and AI specialists until they had about three for every well engineer. These specialists successfully automated tasks and processes to the extent that they are no longer needed.
Drilling and production are not the primary retrenchment targets. ExxonMobil plans to leverage Pioneer Resources assets to double its Permian basin production. While drilling is expected to remain relatively flat worldwide, companies are retaining the ability to respond quickly to market forces, which as usual, track oil prices.
Post-COVID US drilling peaked in 2022 when oil was $90-100/bbl and nearly matched that activity in 2023. This coincided with Biden-era regulatory burdens and high steel prices. Even with oil averaging $67/bbl, the 2025 pace of US drilling was initially up from last year but has since slackened.
A recent Dallas Fed Energy Survey among 38 E&P firms reports that large E&P companies expect to decrease drilling through yearend, with most small E&Ps planning either to decrease drilling or continue drilling at the current pace.
Respondents to a larger Dallas Fed survey of E&P and service firms expect $68/bbl WTI by end-2025. Permian breakeven for new wells is about $65/bbl, and most respondents expect prices to rebound to $72/bbl by 2027. As usual, drilling follows price. WTI spot prices averaged $69.81/bbl during the survey period, so if the predictions hold true, US drilling will remain at the latter-2025 drilling pace projection.
Offshore drilling looks more promising, with a US GOM breakeven price of about $47/bbl. OPEC plans to increase production, however, and Chinese demand remains flat, putting more downward pressure on drilling.
Tariffs increase US well costs by 5-10% and are partially the reason for the mid-year drilling downturn. Prices for steel pipes increased 15-25% after tariffs were announced in March and hot-rolled coil steel is expected to remain about 15% higher than 2024 prices.
A US supplier of completion equipment told OGJ his Asia-Pacific tubular and steel supplies now cost more than domestic sources. This should be beneficial for US suppliers, but domestic supplies are too expensive for his clients’ projects, he said. To keep them from cancelling existing projects—many already have cancelled future ones—he is assuming the additional margin and wonders how larger operations with more employees will get by without layoffs if things do not change.
That change may not come soon. Tubular suppliers are mostly passing on raw material cost increases, and dropping those costs requires nuanced and tangled multinational policies that are currently lacking.
In these turbulent and uncertain times, steady but unremarkable drilling activity may be the only constant.
