Shale Giant Diamondback Is Boosting Oil Output "Immediately" On Soaring Prices

With oil prices soaring to multi-year highs, it was only a matter of time: Diamondback Energy, one of the largest shale oil producers, announced it is boosting crude output in response to rising prices caused by the Iran war.

The company that operates in the Permian Basin of West Texas and New Mexico is pumping more than 520,000 barrels a day, 3% more than its original full-year guidance, and plans to sustains those levels, Chief Executive Officer Kaes Van’t Hof wrote in a letter to shareholders on Monday.

“We believe there is a legitimate supply-demand imbalance and that the associated price signal is the catalyst to begin to grow production,” he wrote. “Because of our positioning, our preparation and this price signal, we are bringing incremental barrels to the market immediately.”

Van’t Hof’s comments come just days after supermajors Exxon Mobil and Chevron told investors they wouldn’t significantly alter production plans in response to the unprecedented war-drive disruption to Persian Gulf energy supplies. Exxon’s plan to raise Permian Basin output by 12% this year pre-dated the Iran war, while Chevron is sticking to plans to keep production from the region essentially flat. 

However, now that one company has broken the seal, expect a rush to hike output across the US E&P sector.

As Bloomberg notes, Diamondback isn’t the first shale specialist to see the Middle East conflict as an opportunity to bolster production. Billionaire Harold Hamm’s Continental Resources made a similar pledge last month. And who can blame them: crude futures are up by more than 50% since the war in Iran began in late February, and after all, when it comes to commodities, the age-old saying is that "the cure for high prices is high prices."

Of course, with more output comes more capex: Diamondback is also is raising spending guidance by 4% this year to about $3.9 billion, with plans to add as many as three additional drilling rigs and run a handful of frack crews for the rest of this year, Van’t Hof wrote.

Diamondback's CEO made waves exactly one year ago when he warned markets that the US is "at a tipping point" saying the US shale output has peaked, and slashed his capex. What a difference a year makes. 

The company is also working through its backlog of ready-made wells that have already been drilled and await fracking as a way to unleash more oil more quickly.

After using a stoplight analogy in investor letters over the past year to describe his thinking on whether to accelerate or hit the brakes on output, Van’t Hof said Monday that “the light has turned green, and Diamondback is well-positioned to respond to the current macro environment.”