America Is the World Leader in Oil Production
The United States set a global and historical record in 2023, producing more than 13.2 million barrels of crude oil per day. This daily value is more than at any time in U.S. history and more than major competitors, like Russia and Saudi Arabia, number two and three in output, respectively.
Despite expectations to the contrary, America is producing more oil than ever before under the current administration, surpassing all other countries in the last year.
The U.S. will likely surpass its prior annual record of 4.493 billion barrels of oil. That high was in 2019, under the Trump administration, and before the pandemic. Production data on the U.S. Energy Information Administration (EIA) website is usually one or two months behind. However, through October, America produced 3.909 billion barrels, on track to exceed 4.7 billion, assuming daily production of 13.2 million per day in the last two months of the year.
Moreover, record American oil production and exports with high oil and gasoline prices have allowed oil firms’ revenue and earnings to increase dramatically. As a result, investors in the Energy sector have enjoyed excellent total annual returns in the past three years.
Massive Turnaround Since the Low in 2008
Oil production in America hit a 62year low in 2008, averaging about 5 million barrels per day. Total annual production was only 1.83 billion barrels. Further, the U.S. was a net importer of crude with minimal exports.
What changed? Technological innovation and discoveries drove the dramatic turnaround.
Fracking Allows Oil Output To Grow
Shale rock formations often contain a significant amount of oil. However, the oil is difficult to extract. Only when fracking became technologically and economically feasible was this oil accessible and profitable. Consequently, major shale formations like the Bakken stretching from southern Canada into Montana and North Dakota became large oil producers. In fact, according to the EIA, monthly oil production in the North Dakota part of the Bakken Formation increased nearly seven times between 2008 and 2023.
Horizontal Drilling Revitalizes Fields
Similarly, horizontal drilling technologies made declining oil fields more productive. Output from the giant oil fields of the Permian Basin in western Texas and eastern New Mexico began a long decline after peaking in the early 1970s. Production fell approximately 60% by the mid-2000s. However, the combination of horizontal drilling and fracking resulted in a dramatic surge in output to almost 6 million barrels per day by the end of 2023.
Technological innovation, combined with discoveries in the major oil-producing states of Texas, New Mexico, and North Dakota, allowed oil firms to grow reserves and production. The net effect was a massive turnaround in American oil production.
Oil Exports Surge
Since World War II, the United States has been a net importer of crude oil. For decades, the United States exported little crude oil because demand outstripped supply. It didn’t help that the Energy Policy and Conservation Act passed in 1975 limited exports. But in December 2015, Congress repealed the ban, and exports quickly grew. By the first half of 2023, exports reportedly reached 4 million barrels per day.
Jim Burkhard, Vice President and Head of Research for oil markets, energy, and mobility in the S & P Global Commodities Insight, explains, “Not only is the United States producing more oil than any country in history, but the amount of oil (crude oil, refined products, and natural gas liquids) that it is exporting is near the total production of Saudi Arabia or Russia.”
That said, America still imports oil, mainly from Canada and Mexico because many refineries process heavier grades of crude oil than those from U.S. oil fields.
Investors Are Benefitting
Record oil production and high prices after the COVID-19 pandemic have resulted in solid revenue and earnings per share growth. Share prices have soared from their lows during the pandemic.
Additionally, companies like Exxon Mobil (XOM) and Chevron (CVX), two of the leading American oil forms, reward shareholders with dividend raises and large share repurchase programs. Exxon Mobil raised the dividend in October 2023, extending its streak to 41 consecutive years. Chevron should announce another hike early this year. Both companies are members of the well-known Dividend Aristocrats.
The Bottom Line About Record Oil Production
The trends driving record oil production in the United States are still present; 2024 should be another excellent year.
However, the most prominent companies are expecting an industry slowdown in the future. They are acquiring smaller firms to bolster their reserves and grow production in deals using stock, taking advantage of their higher share prices. Chevron is buying Hess Corporation (HES) in a $53 billion transaction, while Exxon Mobil is acquiring Pioneer Natural Resources (PXD) for $59.5 billion.
Smaller firms have also been active, and the industry committed about $250 billion to consolidation in 2023. The deals should let the big oil firms continue to grow output and maintain the United States’ lead.