Why are US oil and gas companies hesitant to expand production in 2025?

Despite US President Donald Trump's encouragement to increase drilling, US oil and gas companies are expected to prioritize shareholder returns and limit spending in 2025, according to a Reuters report.

Investor expectations and Trump's pro-oil and gas agenda are likely to be at odds when Big Oil reports fourth-quarter results and outlooks for the coming year, beginning this week. 

In recent years, the industry has focused on cost reduction and production increases through technological efficiency, rather than extensive new drilling, according to the report.

Slower demand weighs on oil and gas prices

Additionally, producers are grappling with the decline in global oil prices as the post-pandemic surge in demand subsides and China's economy faces challenges.

Global demand had remained subdued last year with China, the world’s largest importer of crude oil, importing less. 

The US Energy Information Administration projects that the average price of Brent crude oil will fall from $81 per barrel in 2024 to $74 per barrel in 2025.

The decline is mainly due to expectations of slower oil demand in China in the coming years. Experts have also said that oil demand is expected to peak in China over the next couple of years. 

Analysts at Scotiabank anticipate that US exploration and production companies will aim for production growth of up to 5% this year, according to the report. 

They also expect capital expenditures to remain flat or slightly lower year-over-year.

Exxon’s ambitious plans

Exxon Mobil, the largest U.S. oil company, is the exception to the trend. 

The company plans to significantly increase production, aiming to more than triple its output in the Permian, the leading US shale field. Additionally, Exxon Mobil intends to produce 1.3 million barrels per day from its profitable operations in Guyana by 2030.

"We expect most oil and gas producers to remain disciplined with capital expenditures," Rob Thummel, senior portfolio manager at Tortoise Capital told Reuters. 

Barclays analysts predict that Chevron, which releases its quarterly results on Friday, will increase production by around 3% this year and by a mid-single-digit percentage in 2026. 

RBC Capital Markets analysts note that Chevron has shifted away from substantial investments in new projects and is now generating cash. 

According to Thummel, Chevron could announce a dividend increase of at least 5% over the previous year, as previous dividend increases have been between 6% and 8%.

Oil companies' earnings

LSEG's compiled data indicates that Chevron's fourth-quarter anticipated profit of $3.87 billion will be lower than the $6.45 billion reported in the same quarter last year.

Meanwhile, Exxon Mobil's profits are expected to fall to $6.85 billion, compared to $9.96 billion in the same period last year, according to the report.

The company indicated earlier this month that its earnings would decrease by approximately $1.75 billion compared to the third quarter. 

This reduction is due to lower oil refining profits and overall business weakness.

ConocoPhillips could experience production growth in the low single digits this year, as it prioritizes returning cash to shareholders, the report quoted Barclays. 

Additionally, Scotiabank analysts believe that the company's December acquisition of Marathon Oil, which concluded following a Federal Trade Commission review, could positively impact its performance.