While oil and gas companies have voiced support and even enthusiasm for the administration’s “drill baby drill” policies, survey data and anonymous comments from oil and gas companies released last Thursday from the Dallas Fed’s energy survey for the first quarter reflects a different perspective.
Uncertainty rises to the fore
A major theme in survey respondents’ comments was uncertainty created by the administration’s policies, specifically around tariff-induced price increases, the price of oil and the economic and financial climate. Lower oil prices, nearing if not below breakeven points, also threaten oil companies’ willingness to drill new wells. If the administration succeeds in its goal of $50-60 per barrel oil, the result may be less oil drilling, not more.
Business leaders mentioned “uncertainty” more in the latest survey than in the last five years, sharing comments including the following:
- “I have never felt more uncertainty about our business in my entire 40-plus-year career.”
- “The key word to describe 2025 so far is ‘uncertainty’ and as a public company, our investors hate uncertainty.”
- “Uncertainty around everything has sharply risen during the past quarter. Planning for new development is extremely difficult right now due to the uncertainty around steel-based products. Oil prices feel incredibly unstable, and it’s hard to gauge whether prices will be in the $50s per barrel or $70s per barrel. Combined, our ability to plan operations for any meaningful amount of time in the future has been severely diminished.”
- “The only certainty right now is uncertainty. With that in mind, we are approaching this economic cycle with heightened capital discipline and a focus on long-term resilience.”
Higher costs
Oil and gas companies are facing increasing costs, and an administration oil price target of $50-60 per barrel would squeeze the industry’s margin and free cash flow. Tariffs, especially those on steel, are driving up costs across the energy value chain, from drilling to pipelines to refineries and more. Companies focused on natural gas have the benefit of a sunnier outlook for prices that provides more room to recover those costs.
U.S. Interior Secretary Doug Burgum said during the 2025 CERAWeek conference in Houston that he expects savings from deregulation of $6 to $8 per barrel, outweighing tariff-related cost increases. However, 49% of survey respondents estimated their total cost of regulatory compliance ranged between $0 to $1.99 per barrel, and only 9% of respondents estimated their regulatory costs at $6 or more per barrel.
Risk of lowering production
The administration has a goal to increase U.S. oil production by 3 million barrels per day, a 22% increase from recent levels of approximately 13.5 million barrels per day, but the threat of lower oil prices puts this at risk.
In the Dallas Fed energy survey and in the Kansas City Fed energy survey released in January, respondents said the breakeven cost for profitably drilling new wells averaged between $60-64 per barrel. If oil reaches $60, the U.S. risks oil companies delaying plans for new drilling. The risk of slowed drilling and even curtailed production increases further if prices get closer to $50.
Takeaways
Uncertainty around policies and rates of return raises the risk of delayed investment decisions, while unfavorable economics may shelve new projects entirely until conditions improve. Long development timelines for energy infrastructure means that delayed decisions today can have a ripple effect for years to come.
Policymakers must keep in mind that in the U.S., the price of oil is king in determining oil production volumes. The goals of lower oil prices and higher production do not align, and higher costs and uncertainty further complicate the picture.
In the meantime, oil companies must continue their focus on capital discipline and improving operational efficiency. We have seen this already as they streamline assets and business units, as well as look for opportunities to innovate with new technologies that drive further efficiency in production and business operations. Through these, the industry will continue driving costs down and open new opportunities for the next decade of production.
