Texas Border Business
The US Energy Information Administration (EIA) recently released projections indicating little or no growth in US oil production for 2026. While still near 2025’s record level of 13.6 million barrels per day (b/d), it’s a notable shift from the expansionary pattern of the past few years. For 2027, a slight decrease is expected. The Permian Basin, Alaska, and offshore production in the Gulf may increase slightly, but these gains are projected to be offset by decreases in other areas.
The issue is certainly not available supply. There are billions of barrels of oil and trillions of cubic feet of gas in the ground, with much more yet to be found. The EIA estimated, as of 2023, that there were some 21 billion barrels of oil in the Permian Basin alone, just counting “proved” reserves. In addition, only a fraction is produced using current methods, and future technological advances will ultimately generate greater yields.
New wells coming online (including completing ones that are drilled, but not yet producing) is essential to increasing total production, as decline curves (the falloff in output from a well over time) can be fairly steep. Rig counts in Texas are about 229, down from 277 a year ago. A survey by the Federal Reserve Bank of Dallas found that 39% of oil and gas executives expected capital spending to decrease in 2026, with many of those anticipating significant forbearance. Another 24% expect to maintain current levels, with 37% seeing increases.
The essential issue is simply the fact that the current price level is not incentivizing as much activity as in the past. Survey data from the Dallas Fed indicates that oil prices needed to profitably drill a new well in the Midland or Delaware areas of the Permian Basin or the Eagle Ford average about $61-$62 per barrel, with higher requirements in other areas. It can take $45 per barrel just to cover costs for existing wells. The EIA is projecting oil prices to fall from a 2025 average of $65 per barrel to $52 or less in 2026.
Keep in mind, however, that this sector is highly volatile and impacted by myriad global factors. As a result, things can quickly and unexpectedly change. Just a few years ago, prices exceeded $120 per barrel. We could see significant increases if tensions in the Middle East escalate, OPEC+ cuts supply, or uncertainty in the global economy decreases sufficiently to spur faster economic growth. Once we are past the recent spate of adverse conditions, expanding populations, emerging economies, and rapid adoption of energy-intensive technologies will require substantial additional resources, and forecasts indicate that the need for conventional fuels will increase for decades to come. Stay safe!
_______________________
Dr. M. Ray Perryman is President and Chief Executive Officer of The Perryman Group (www.perrymangroup.com), which has served the needs of over 3,000 clients over the past four decades.
