Immediately after his election win last year, United States President Donald Trump made his mind clear on the future direction of the American energy industry. The phrase “Drill, Baby, Drill” was used for oil and gas exploration and extraction. However, oil majors are concerned that increasing oil and gas output even further could create a glut and drive prices down, a development they want to avoid at any cost.
On his first day in office (January 20, 2025), President Trump declared an energy emergency, stating, “The integrity and expansion of our Nation’s energy infrastructure is an immediate and pressing priority for the protection of the United States’ national and economic security.”
In January 2025, Trump also signed several executive orders, including one on energy that includes a wide range of provisions aiming to “unleash America’s affordable and reliable energy and natural resources,” thereby ending the Joe Biden administration’s pause on the approval of new LNG exports.
It also commenced processes to ease regulations on oil and gas production. Trump also signed an order to lift restrictions on oil, gas, and mineral production in Alaska and announced plans to establish an inter-agency working group to determine and implement measures to expedite oil and gas development.
Unleashing American energy
The executive order focuses on the “national interest to unleash” America’s affordable and reliable energy and natural resources,” which will in turn, rebuild America’s economic and military security.
The Trump administration has “clear policy goals” for the United States to meet the energy needs of Americans, by exploring federal lands and water, including the Outer Continental Shelf, for energy exploration and production to solidify the United States as a global energy leader. The government will also use the energy sector reforms as a means to create jobs, apart from ensuring prosperity and strengthening supply chains in the United States by establishing the world’s largest economy as the leading producer and processor of non-fuel minerals including rare Earth minerals.
The executive order also speaks on arming the “American Energy Security” to an extent, where across the states, an abundant supply will be readily made accessible to protect the Trump administration’s economic, national and military needs. However, the order also eliminates the Biden government’s electric vehicle mandate to promote “true consumer choice for essential economic growth and innovation, remove the regulatory barriers to motor vehicle access, and terminate state emission waivers that function to limit sales of gasoline-powered automobiles.”
Energy efficiency regulations will be rolled back, involving lightbulbs, dishwashers, washing machines, gas stoves, water heaters, toilets and shower heads to safeguard Americans’ freedom to choose from a variety of goods and appliances and promote market competition.
“The Trump administration will ensure that all regulatory requirements for energy are grounded in clearly applicable law. The global effects of a rule, regulation or action will be reported separate from its domestic costs and benefits to promote sound regulatory decisions and prioritise the interests of Americans,” states the order further, while mandating all agency heads to review existing regulations to identify those that impose an undue burden on domestic energy resources (particularly, oil, natural gas, coal, hydropower, biofuels, critical minerals and nuclear energy resources), and to develop a plan to suspend, revise or rescind such measures.
The executive order, in effect, has put an end to all activities, programmes and operations associated with the American Climate Corps, which was entrusted to fight the battle against climate change. All the heads of executive departments will now undertake efforts to eliminate delays with their respective permitting process and use all authorities, including emergency authorities, to expedite their federal permits, including a potential revision or reimagining of the National Environmental Policy Act (NEPA) process. The executive order will also prioritise accuracy in environmental analyses through the end of the “Interagency Working Group” on the Social Cost of Greenhouse Gases.
One of the most significant sections of the executive order is Section 7, which terminates the “Green New Deal,” by directing all agencies to immediately pause the disbursement of funds appropriated through the Inflation Reduction Act (IRA) or the Infrastructure Investment and Jobs Act (IJA), including but not limited to funds for electric vehicle charging stations made available through the National Electric Vehicle Infrastructure Formula Programme.
“Although Section 7’s effect on the renewable energy tax credits under the IRA is unclear, it appears that the order is aimed at targeting grants, loans and contracts under the IRA and IJA, not tax credits. The IRA’s direct pay mechanism under Section 6417 of the Internal Revenue Code is not likely to be affected by this language since direct pay is a statutory method for claiming a tax refund and not a grant, loan or contract. If the executive order is interpreted to halt direct pay, it will likely be subject to considerable legal scrutiny and ultimately be overturned as taxpayers sue for direct pay payments that they are entitled to by statute,” observed United States-based law firm McGuireWoods.
Additionally, the secretary of energy will restart reviews of applications for approvals of liquified natural gas (LNG) export projects as expeditiously as possible, apart from considering the economic and employment impacts on the United States and on the security of allies and partners that would result from granting such applications.
The executive order also requires the secretary of the interior, secretary of agriculture, administrator of the Environmental Protection Agency, chairman of the Council on Environmental Quality and heads of other relevant agencies to revise undue burdens on the domestic mining and processing of nonfuel minerals.
Since Alaska holds an abundant and largely untapped supply of natural resources including energy, minerals, timber and seafood, the Trump administration has now directed the United States departments and agencies to maximise the development and production of natural resources (including LNG) efficiently and effectively on federal and state lands in the region. Federal departments and agencies are directed to prioritise the development of Alaska’s liquified natural gas potential.
Judging players’ reactions
While the new executive order has given a massive playing field for the oil and gas majors, several of these ventures have already warned about not looking to increase production unless prices increase significantly. In 2024, American oil and gas production rose to record highs. Crude output increased by 260,000 bpd month-on-month, to a record 13.46 million bpd, in October, in line with demand growth, according to the US Energy Information Administration (EIA). In 2024, drilling operations became more efficient, allowing for greater output. However, weaker-than-expected demand growth in several parts of the world, particularly China, contributed to lower oil prices.
Many oil and gas companies have shown support for Trump’s executive orders, which make it easier to conduct operations, including new exploration projects and production increases. However, several oil executives have said these new policies will not lead to an immediate output boost, stating concerns over oil prices. While Trump hopes to help reduce inflation by decreasing energy prices for consumers, many oil companies are hesitant to increase output without the guarantee of higher oil and gas prices.
Ron Gusek, the president of oil field services company Liberty Energy, said, “What you are seeing is a huge amount of positivity. But it’s too early to say that that’s going to translate into a change in actual activity levels here in North America.”
American energy majors have spent large amounts in increasing their oil and gas production in recent years. Things have only accelerated since 2022 in the wake of the Russia-Ukraine war and subsequent sanctions on Moscow’s energy trade, which created an oil and gas shortage around the globe and drove prices up, with Europe particularly feeling the pinch hard.
In addition, with the International Energy Agency’s warning that the demand for fossil fuels will decline from 2030, many oil and gas companies are exploiting their resources while global demand remains high. However, after several years of spending, many are reluctant to invest more without a guarantee of a return.
According to the EIA, Brent Benchmark crude oil prices are expected to average $74 per barrel in 2025, marking a decrease from $81 in 2024. However, with Trump being the US President, several customers have shown interest in signing long-term deals for US gas exports, according to Ben Dell, a managing partner of the energy investment firm Kimmeridge.
Dell noted, “People want to be early and in the forefront of signing up for US products to try and stave off potential tariff threats.”
Trump threatened to introduce 25% tariffs on Canadian and Mexican products, including energy. The Republican also said that he planned to introduce the tariffs on his first day in office.
Following announcements of strong retaliatory measures from Ottawa and Mexico City, Trump has decided to pause his plans. The world’s largest economy will now pursue negotiations to address its bilateral concerns with its North and Latin American neighbours. If tariffs on oil and gas are introduced in the coming weeks, they could drive up energy prices and increase reliance on domestic production.
“We still expect Canadian oil producers to eventually bear most of the burden of the tariff with a $3 to $4 a barrel wider-than-normal discount on Canadian crude given limited alternative export markets, with US consumers of refined products bearing the remaining $2 to $3 a barrel burden. We estimate Canadian natural gas exports to the US might drop by a modest 0.16 billion cubic feet per day (bcfd) as a result of 10% import tariffs, with little if any impact on US gas prices,” stated Goldman Sachs on the prospects of Washington imposing tariffs on Ottawa.
Will golden days arrive?
According to analysts at Scotiabank, United States-based exploration and production companies are expected to target 5% production growth in 2025, and flat to slightly lower year-over-year capital expenditures. This is except ExxonMobil, which has plans for a large increase in production.
Talking about ExxonMobil, the energy major has announced plans to increase its oil and gas output by 18% by 2030, with a focus on expanding its operations in the United States and Guyana. The plan includes raising annual project spending to $28-33 billion from 2026 to 2030. The company recently acquired US shale producer Pioneer Natural Resources. Exxon also plans to boost earnings by $20 billion and increase cash flow by $30 billion over the next five years.
This financial boost will support Exxon’s expansion plans in oil and liquefied natural gas (LNG) production, while also driving shareholder returns. The venture is already benefitting from its profitable Guyana operations and its growing US shale business. CEO Darren Woods has stated that the increased project spending would “generate returns of more than 30% over the life of the investments.”
The company intends to triple its production in the Permian Basin, the leading US shale field, to 2.3 million barrels per day (mbbl/d) by 2030. Additionally, Exxon aims to produce 1.3mbbl/d from its Guyana operations. Overall, ExxonMobil’s oil and gas output is projected to reach 5.4mbbl/d, marking an 18% increase from the current 4.58mbbl/d.
The company plans to add two projects in Guyana by 2030, aligning with its previous statement of seven to ten projects. Its LNG target remains at 40 million tonnes per annum. These targets aim to reassure shareholders that returns can be maintained despite fluctuations in oil market prices.
However, if we talk about the bigger picture, Wall Street expects American oil and gas companies to keep a lid on spending in 2025, while focussing more on generating shareholder returns, despite Trump’s “Drill, Baby, Drill” call.
While Trump’s oil and gas production-maximising agenda has sky-high ambitions, the reality is that the industry has been driving down costs and increasing production by using more efficient technology rather than drilling many new wells. Producers are also contending with lower global oil prices as the post-COVID demand rebound runs its course, amid China’s economic slowdown.
During an interaction with Reuters, Rob Thummel, senior portfolio manager at Tortoise Capital, “We expect most oil and gas producers to remain disciplined with capital expenditures. However, less regulation will make it easier to increase drilling activity if commodity prices reach levels that are too high.”
Another American energy major, Chevron, recently reported Q4 earnings below Wall Street estimates as weak margins dragged its refining business into a loss for the first time since 2020. Chevron CEO Mike Wirth said that the post-COVID surge in fuel margins had run its course, and the downtrend is set to continue in 2025.
The second-largest American oil producer, one of the first companies to heed Trump’s executive order renaming the Gulf of Mexico the “Gulf of America,” posted adjusted earnings per share of $2.06, way below Wall Street’s $2.11 estimate. Chevron’s downstream business lost $248 million in Q4, compared with a profit of $1.15 billion in the same period a year ago.
In a note, RBC analysts said profit from the company’s oil and gas exploration and production unit rose to $4.3 billion from $1.59 billion a year ago when the figure included charges, but the US business missed consensus estimates.
“A relatively soft set of numbers. With the strong run, CVX has had relative to peers over recent months, we expect these results to be taken as disappointing,” they remarked.
Chevron further noted a trend in the conventional energy sector: refining margins softening in both American and international markets, but weak jet fuel demand aggravating troubles for the American energy majors’ domestic businesses.
The company has also remained locked in a bitter arbitration battle with Exxon over its proposed $53-billion takeover of Hess, which owns a 30% stake in Exxon’s Guyana holdings.
“Producer ConocoPhillips could also grow oil and gas production in the low single-digit percentage in 2025 to focus on returning cash to shareholders,” Barclays said.
In December 2024, the company completed its $22.5 billion buyout of smaller peer Marathon Oil, which had been under a Federal Trade Commission review. According to Scotiabank analysts, this could swing its performance up.
“Occidental, meanwhile, is expected to report $730.9 million in adjusted profit for the fourth quarter, up from $710 million in the same quarter last year. The oil producer closed its acquisition of CrownRock in August and its capex this year is expected to total $7.44 billion, up from $6.9 billion last year,” Barclays continued, while adding, “For Diamondback Energy, Raymond James analysts expect the company to choose free cash flow over growth after its acquisition of Endeavor. Profit is expected to come in at $977 million, up from $854 million in the same quarter last year. Production growth is expected to be flat with lesser spending in 2025.”
Rob Thummel, a senior portfolio manager at Tortoise Capital, said “We expect most oil and gas producers to remain disciplined with capital expenditures. However, less regulation will make it easier to increase drilling activity if commodity prices reach levels that are too high.”
“Despite Trump’s best efforts to immediately push oil and gas production up, it appears that the American fossil fuel producers will only increase output if the price is right. The introduction of several executive orders favouring oil and gas will make it easier to develop new projects and produce more if oil majors desire. It could also encourage more customers to invest in American oil and gas, to avoid tariffs on foreign energy products. However, it is unlikely to have an immediate effect on the oil and gas output-related activities in the world’s largest economy, which is already at a record high, unless the Brent Benchmark looks set to increase,” noted Oilprice.com.
The slogan “Drill, Baby, Drill” is simply unattainable, especially considering that profit margins for fuel sales dropped significantly across the industry in 2024. This decline was driven by a fading surge in post-pandemic demand and a slowdown in economic activity in both the United States and China.
However, there is a development that could brighten the prospects for energy sector players. As the demand for artificial intelligence (AI) continues to rise, data centres are becoming essential components of the 21st-century tech ecosystem. These data centres provide the computational power necessary to train complex algorithms and manage vast amounts of data. Consequently, there is an estimated need for an additional 47 gigawatts of power capacity across the United States by 2030.
Notably, approximately 60% of this US demand is expected to be met by natural gas, thereby creating significant growth opportunities for oil and gas suppliers. Globally, the demand for natural gas will rise substantially, with some analysts forecasting up to 50% market growth over the next five years.