The Crude Chronicles: Navigating the Permian's Peak
Contributed Opinion

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Back in the sweltering August of 1931, the Lone Star State treated crude oil as a menace to society.

The East Texas oilfield had burst into a wild frenzy of drilling, and crude prices didn't merely dip. No, my dear reader, they absolutely imploded to the kind of price you'd expect to shell out for a mere stick of chewing gum.

By the time Governor Ross Sterling intervened, the solution wasn't a mere committee or a projection. It was full-blown martial law. Swiftly, Texas Rangers and the National Guard were dispatched to shutter wells and restore order, for the "surplus" wasn't some theoretical exercise; it was a deluge of black gold flooding the market faster than it could possibly absorb. And this utterly shredded the economic foundation beneath everyone's feet.

Over 1,600 wells were forcibly shut down.

Today, we find ourselves mired in a modern iteration of the same folly. We're acutely aware that far too many individuals out there are mistaking the media's "supply glut" narrative for the real-world capacity to maintain a smooth flow of oil.

And you're just as cognizant as I am that a paper surplus is effortless to print. But a genuine, tangible surplus — one that withstands weather, logistics, decline rates, and the merciless math of depletion — can prove far more elusive… particularly in this day and age. Let's kick off with a dash of headline reality…

The Permian Basin — a gleaming beacon and darling of U.S. oil output growth for over a decade — may finally be bumping up against a production ceiling.

That's a more significant predicament than most folks grasp.

The EIA's most recent near-term projection pulls no punches about the trajectory. It anticipates Permian crude production to remain essentially stagnant at roughly 6.6 million b/d in 2026, after averaging around that level in 2025, and then inch slightly lower in 2027 as rig activity wanes alongside weaker prices.

If you're after the most straightforward "why this matters" statistic, it's this: Nearly ALL of U.S. oil production growth since 2020 originated from a minuscule sliver of the Permian map. Indeed, the EIA discovered that a mere ten counties in the Permian accounted for a staggering 93% of U.S. oil production growth between 2020 and 2024! That concentration is energy security in both directions… It's a strength because it propelled the U.S. to become the world's supply shock absorber, helping to underpin record production and export capacity. Regrettably, this is also a vulnerability because when that singular machine grinds to a halt, the entire growth narrative sputters.

Of course, this isn't even mentioning the fact that activity at another powerhouse oil region — North Dakota's Bakken play — is screeching to a standstill.

Folks, we're witnessing the "physical" side of our supply vulnerability unfold in real time. Further compounding the situation was this month's winter storm, which shut in as much as 2 million b/d of U.S. crude output, with much of the impact centered on the Permian. And operators anticipated days — not mere hours — before a full recovery. That's a stark reminder that we don't require a geopolitical crisis for the market to hemorrhage more barrels.

Now consider other catalysts that have been neglected for far too long — decline rates and drilling activity. Remember, oil output in the Permian basin can remain elevated, but sustaining it demands constant reinvestment because shale wells decline rapidly and the basin's "base" is colossal. And when prices sag, drilling incentives evaporate, and the plateau becomes a harsh reality. Ponder this… if the Permian Basin's oil production is surging, the U.S. can export more, replenish inventories more comfortably, and weather disruptions with less price volatility.

When production flattens (which it is!), the margin for error contracts, and every disruption — be it storms, OPEC policy shifts, shipping constraints, or geopolitics — has a more pronounced impact on price and policy. And here's the catch that's drowned out in the noise… "Flat" can still be bullish. Look, a production plateau at roughly 6.6 million b/d isn't a collapse, but it does alter the equation. What it truly signifies is that the era of the Permian Basin bailing out global supply shocks and transforming the United States into a global swing producer has concluded. And that renders every barrel extracted in West Texas going forward even more crucial. If the market is pivoting from Permian growth to Permian maintenance, the investment opportunity shifts in tandem. The victors won't be the companies that merely possess Permian acreage, but rather the elite operators that can maintain output steady — or heaven forbid increase output — all while spending less per barrel to accomplish it.

And you can wager that the "headline giants" aren't the most pristine way to play this next chapter.

Big Oil players like Exxon Mobil Corp. (XOM:NYSE) and Chevron Corp. (CVX:NYSE) boast superb assets, but their Permian scale has increasingly been acquired at premium prices, including Exxon's all-stock deal for Pioneer valued at about $59.5 billion and Chevron's acquisition of PDC Energy with a total enterprise value of $7.6 billion. The true hidden Permian gems — the ones people tend to overlook until the narrative shatters — appear different on paper.

They're the more subdued operators with expansive blocks of contiguous acreage that enable longer laterals, repeatable well designs, and lower unit costs. I'm also referring to robust drilling and completion execution, not just sizable land positions. When the market finally acknowledges that the Permian's growth engine has cooled, the premium will gravitate toward those "quietly efficient" Texas drillers.

Not because they're flashy, mind you, but because they can keep Texas on top without exacting an exorbitant toll on their war chests.

That's the setup we crave. Mark my words, the next bull phase in oil won't just revolve around higher prices. The real value will emanate from those who can still drill profitably, consistently, and at scale in a basin that's no longer doling out easy growth. And once that reality becomes consensus, the best-positioned names won't remain hidden for long.