Following a year of strong consolidation in 2023, oil production in the US’ Permian Basin this year is set for its slowest annual growth since 2021, as companies divert capital away from exploration and new projects.

Overall gains in US production will be limited by reduced growth in the Permian, given it is the nation’s largest oilfield. The deceleration in production comes despite higher oil prices caused by cuts from the Organisation of the Petroleum Exporting Countries and allies (OPEC+), which usually encourage non-OPEC+ members to pump more.

In 2023, the US achieved a record oil output of 12.93 million barrels per day (mbbl/d). However, this month the US Energy Administration (EIA) cut its growth forecast for 2024 by 120,000 barrels per day (bpd) to 170,000bpd, down vertiginously from growth of more than 1mbbl/d in 2023.

The EIA data shows the Permian is expected to produce a record high of 5.97mbbl/d in February, but this will be the smallest month-over-month growth since July.

Analysts told Reuters that they have higher expectations for Permian growth, well above what the EIA expects for total US production growth. Throughout the year, the analysts forecast Permian output to grow by 320,000–360,000bpd, compared with 520,000bpd in 2023.

The lower growth comes as a result of a slew of mergers and acquisitions (M&A) in the region, indicating a diversion of capital away from exploration of new projects towards consolidation and the shoring up of dividend payments. Such deals include Chevron’s acquisition of Hess for $53bn in October. A key trend in the deals was public companies buying private companies that were inclined to expand production before the deals were made.

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Mike Coffin, head of oil and gas at the think tank Carbon Tracker, said: “At its heart, this increased M&A activity is an acknowledgment of the energy transition from the oil industry. Rather than spending lots of money on exploration or developing new projects, companies are pursuing a more risk-averse strategy [of] buying into existing production.”

Michael Oestmann, chief executive of Tall City IV, a producer based in Texas, told Reuters: “The publics are not drilling as much as they could. Their investors now require a certain amount of cash be returned to them instead of invested in new drilling.”