Diamondback's note to shareholders dated May 5

[dan_s]

Here is the direct link:
https://www.diamondbackenergy.com/news-releases/news-release-details/letter-stockholders-issued-diamondback-energy-inc-7

Macro Update
The past two months have been challenging for the U.S. oil and gas industry, as the combination of global economic uncertainty (lower demand) and an increase in expected OPEC+ production (higher supply) has lowered oil prices and increased volatility.

Over the past decade, the cost of supply for the average barrel of oil produced in the United States has increased. The shale revolution has evolved from proof of concept (outspend cash flow to prove up basins) to manufacturing mode (significant growth) and is now in a more mature stage of development (free cash flow generation and return of capital). Today, geologic headwinds outweigh the tailwinds provided by improvements in technology and operational efficiency. On an inflation-adjusted basis, there have only been two quarters since 2004 where front month oil prices have been as cheap as they are today (excluding 2020 which was impacted by the global pandemic). Therefore, we believe we are at a tipping point for U.S. oil production at current commodity prices.

As crude pricing moves lower for a period of time, as it has over the last month, we expect activity to slow and oil production to decline. We currently estimate that the U.S. frac crew count is already down ~15% this year, with the Permian Basin crew count down ~20% from its January peak, and both are expected to decline further. We also expect the U.S. oil directed rig count to be down almost 10% by the end of the second quarter and decline further in the third quarter. 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. < Once U.S. oil production decline is verified by EIA and other research firms, it will be a significant "Paradigm Shift" and will take a significant increase in the oil price to reverse the decline. With most of the Tier One drilling locations already drilled it may be impossible to reverse. Bottomline: $60/bbl WTI oil is an unsustainable price.

This will have a meaningful impact on our industry and our country. Over the past 15 years, this industry has grown U.S. oil production by 8 million barrels of oil per day to over 13 million barrels per day, a staggering growth trajectory. This growth alone would make the United States the third largest oil producer in the world. Combining both oil and gas production, the United States today produces more than the second and third largest producers, Russia and Saudi Arabia, combined. This has transformed our economy and given the United States a level of energy security not thought possible at the beginning of this century.

In the process, this industry has pushed employment to over 2 million jobs, grown GDP, improved our trade balance and reduced our dependence on foreign oil. This represents the best of American ingenuity, strengthening America’s standing on the world stage while creating millions of high-paying American jobs. In addition, the tax revenue generated from our industry supports education, infrastructure and health care across the country. For example, in 2024 the Texas oil and gas industry sent over $27 billion in tax dollars to Austin. Per TXOGA, this is more than the total tax revenue of 34 states. Today's prices, volatility and macroeconomic uncertainty have put this progress in jeopardy.

[allen46]

Unfortunately, Trump will not listen to this. I support a lot of the things he is trying to do, but not the way he does them. His ignorance and arrogance are on display.

[dan_s]

Trump is a "Driver Driver" personality. He goes full steam after his goals. I have worked for a few of them, which is tough. Trump is also good at "Positioning"; putting together a good team that supports his plans. Give them a few more months. Fixing bad trade deals takes time.

MY TAKE: The U.S. is on an unsustainable financial path that will soon (within ten years) destroy the country. Out-of-control spending, bad trade deals, and endless foreign wars put the country in this situation. Team Trump is doing what needs to be done. Trump's aggressive approach is the only negotiating tool that is getting other countries to agree to better trade terms. In a few months all of the countries that must have access to the U.S. market will agree to lower their tariffs against the U.S. and a lot of companies will move factories here. China cannot survive without access to the U.S. market.