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(Bloomberg) — Energy Secretary Chris Wright says Donald Trump’s administration is giving the “green light” to more US oil production, but the signal from the fracking company he used to run is flashing bright red.
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Liberty Energy Inc., which Wright led until his appointment to Trump’s cabinet, has tumbled 43% this year, one of the most precipitous declines among US energy stocks. The value of Wright’s stake in Liberty has fallen by nearly half to about $30 million over that period.
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Liberty’s rout is a warning that all is not well in America’s shale patch, despite Trump’s pledge to achieve “energy dominance.” Oil field servicers often provide the first indication of an industry downturn because they’re the ones hired to drill and frack new wells. After the trade war and OPEC’s recent decision to hike production knee-capped crude prices, investors expect US shale producers to avoid pumping more barrels into an oversupplied market.
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A drop in spending on services means US oil production could stall, or even decline this year, for the first time since the pandemic. So far, servicers are getting the brunt of the impact from tariff fears: An index of the companies has slid 28% this year, compared with 7% for oil and gas producers.
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“It’s just going to be painful,” said Dan Pickering, chief investment officer at energy-focused financial services firm Pickering Energy Partners. “What comes next, and we’ve already heard whispers of this, it will be slowing down of drilling activity, releasing frack crews.”
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Liberty is due to kick off earnings season for oil field servicers on Wednesday after the market closes, with larger rivals Halliburton Co., Baker Hughes Co. and SLB to follow next week.
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Oil field service companies are largely dependent on producer spending on drilling and fracking new wells for their income, leaving them uniquely vulnerable to downturns. Producers like Diamondback Energy Inc. and Devon Energy Corp., by contrast, can continue to earn revenue from their existing wells. Plus, they have the option of hedging oil prices and renegotiating for lower-cost drilling contracts.
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Even before tariffs, servicers had been suffering from lower demand as shale producers become more efficient, which means fewer drilling days and workers to do the same job. Investors will find out soon if further cuts are coming as contracts inked before the trade war expire and producers respond to the slump in crude prices.
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West Texas Intermediate crude oil, the US benchmark, closed at $61.33 on Tuesday, down 14% this year.
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“We would not be surprised to see US oil output decline” if low prices persist, Barclays Plc analysts led by Amarpreet Singh wrote in a note to clients on Friday.
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A representative for Liberty declined to comment, citing a mandated quiet period ahead of the company’s earnings release. Wright didn’t immediately respond to requests for comment. The energy secretary did, however, put a positive spin on the market in an interview with Bloomberg TV on April 11. Trump’s election gave a “green light” to increase production, with pledges to roll back regulation and expand oil lease sales and permitting, he said.