2025 U.S. Production Market Themes

The oil and gas market remained as volatile as ever in 2024, and the U.S. producer response wasn't without its surprises. On the oil side, an underperformance of global oil demand weighed on prices, while the gas side saw the domestic market hampered by a warmer-than-normal '23/'24 winter that lead to high levels of gas in storage and production curtailments. While weak gas pricing led to curtailments for some operators, largely stable oil prices encouraged exploratory activities offshore leaving others optimistic about future production. The M&A landscape was marked by strategic consolidations, as companies sought to optimize operations, extend inventory, and capitalize on synergies. As we look forward into 2025, a focus on securing inventory via M&A is expected to continue, but oil price volatility (see our 2025 global oil outlook) and gas prices coming out of winter are likely to keep producers cautious of ramping supplies too quickly.

Merger & Acquisition Trends

2024 had over 50 M&A transactions completed in the upstream segment, together valued at over $165 billion, laying the groundwork for a more streamlined industry. This wave of M&A was most notably led by ExxonMobil, Diamondback, ConocoPhillips, and Chesapeake. These transactions tended to expand the acquiring company's existing position in core basins, helping them streamline productivity and minimize overhead costs. While the supermajors and large E&Ps made substantial moves in 2024, there remains opportunity in 2025 for additional consolidation among the mid- and small-cap producers across all core basins. BTU Analytics views market conditions to be supportive of M&A this year, and the main focus will be monitoring post-acquisition strategy and any guidance on incremental production growth.

Inventory Dynamics

Inventory concerns in the core basins like the Permian and Haynesville are well established, but other core regions, like the Eagle Ford, Bakken, SCOOP/STACK, and Rockies, may face challenges meeting production forecasts. BTU Analytics forecasts core oil plays outside the Permian to risk depleting sub-$70 inventory before the end of the current decade. The Permian contributes most of the forecasted oil and gas growth for 2025, but other core basins are required to contribute to domestic markets. Operators in some of the non-Permian plays are beginning to actively develop currently designated tier-2 acreage, and BTU Analytics will be watching this year to see if well performance there can compete with legacy tier-1 acreage.

Benchmark Pricing Uncertainty

Prior BTU Analytics Insights noted expectations for higher oil-price volatility in 2025, and the gas market is in wait-and-see mode as winter continues to unfold. Oil-directed producers may be slow to ramp production until more clarity around how the incoming administration will implement U.S. foreign policy, the impact to global balances, and OPEC's response manifests. Oil production growth for the year would be expected as long as WTI prices remain in the $70-$80/bbl range. Gas-directed producers elected to curtail production in 2024 when gas prices were unsupportive, and BTU Analytics is eager to see if this strategy becomes more commonplace going forward. If winter exits above normal and Henry Hub is weak again this year, operators may not see the incentives to return activity to prior levels and elect to focus on DUCs and TILs until pricing recovers above $2.50/MMBtu.

Looking Forward

As we advance into 2025, the oil and gas sector will continue to adapt to rapidly changing market conditions. BTU Analytics expects the year to be shaped by a few key factors, with M&A continuing, inventory depletion remaining a core focus across most basins, and producers adapting to highly volatile market fundamentals. However, other areas of influence will include the implementation of methane emissions monitoring and fees, environmental regulations, geopolitical tensions, domestic energy regulatory reform, available supplies of OCTG, and moderating oil-field service costs. Be sure to check back in next week as BTU Analytics releases another 2025 outlook focusing on gas markets.

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