Navigating Market Volatility: Protecting Shareholders Returns in Uncertain Times

Today's turbulent energy landscape brings US oil and gas firms to a critical crossroads. With sustained low oil prices threatening established business models and cash flow, companies are making tough choices between protecting shareholder returns and maintaining production.

As organic growth opportunities dwindle, this challenging environment is fueling a surge in strategic M&A and asset acquisitions. Counterintuitively, market uncertainty, including tariffs, is even driving deflationary pressures on drilling costs.

Ahead of the Operational Excellence in Oil & Gas Summit, we sat down with Matthew Bernstein, Vice President, North America, Oil & Gas at Rystad Energy, to unpack these complex dynamics and explore how operators are navigating the path to long-term resilience.

Isobel Singh, Event Director: Matthew, can you start by telling us about your role at Rystad Energy?

Matthew Bernstein: I'm the Vice President for North America, Oil & Gas at Rystad Energy. We're a global energy advisory and analytics firm, headquartered in Oslo, Norway, with presence across all major continents. In my role, I manage our upstream North America solution, focusing on the US upstream sector. This involves closely following the strategies, activities and production of US onshore shale-focused companies, analyzing the latest market trends, and ensuring our data and analytics accurately reflect market movements.

Isobel Singh, Event Director: What are the expected opportunities and challenges for the oil and gas industry given the current regulatory uncertainty, tariffs and sustained pressure from low oil prices?

Matthew Bernstein: It's really become a critical point for the business model that many of these companies – especially publicly traded US E&P firms and some majors – have embraced. The past few years have focused on consistent cash flow generation from operations, building up cash reserves to pay back shareholders via buybacks and dividends. This "modest growth, high return" model was underpinned by the ability to generate cash flow consistently at prevailing oil prices and through asset and corporate acquisitions. Companies were comfortable raising debt because they had confidence in maintaining this cash generation.

However, this model is under threat by current prices, trading in the low $60s WTI. This is a result of OPEC+ policy increasing supply while global economic uncertainty from trade disputes hurts demand. In a sustained low-price scenario, operators will face tough decisions. They'll have to consider cutting back on activity to preserve shareholder payouts. But for US-based companies dealing with quick-declining short-cycle assets, production can quickly slip, making it harder to return to even modest growth, especially with inventory depletion constraints. While it's not a price point where companies are in danger of going out of business, it will force significant prioritization, likely a bit of both activity cuts and payout adjustments, if sustained.

Isobel Singh, Event Director: You mentioned "short-cycle assets." Can you elaborate on what those are and why they're harder to bring back online once production is tapped?

Matthew Bernstein: Absolutely. To understand short-cycle, let's contrast it with long-cycle assets. A long-cycle asset is typically something like a large offshore development. You have a lengthy process of exploration, proving it up, and significant upfront capital expenditure. But then, you produce high volumes for a stable amount of time from large, conventional reservoirs with low decline rates and minimal ongoing capital expenditure.

In shale, however, you're drilling 100-plus wells a year for larger public players. These wells are relatively cheap, but they have quick declines. To consistently maintain your production, you need to continuously invest new capital in drilling and completing new wells each year. It's about the pace of operation; you need to keep a certain number of rigs running and frac activity going just to preserve your production annually, unlike projects with high upfront investment but a more stable long-term portfolio.

Isobel Singh, Event Director: Understood. So, what strategies can operators employ to build scale and long-term operational sustainability to future-proof their business models, given the market volatility?

Matthew Bernstein: From the perspective of US players, there's been very little organic reserve extension, especially on the oil side. Companies prefer to acquire assets because you get long-term reserves and inventory, but also immediate revenue from existing producing wells. This allows for quicker payback on the acquisition cost. This has been the model for future-proofing: acquiring new inventory when existing quality inventory is depleting, to ensure cash flow generation for decades, not just the next few quarters.

While we'll see less upfront M&A in this immediate price environment, there's still a strong case for publicly traded US companies to merge in the coming years. This makes sense considering the market multiples commanded by larger players and the potential for synergies in operational costs, drilling efficiencies and complementary acreage positions.

Beyond that, companies are looking outside the US for exploration, applying unconventional techniques that worked in the US to other regions. There's also a significant focus on natural gas, which has a much more positive demand outlook, particularly in North America. Companies with cross-hydrocarbon positions, possessing both oil and gas resources, have an advantage for long-term durability, even though the market hasn't heavily incentivized gas expansion in recent years. The common thread in all these strategies is extending their low-cost, high-quality resources for a longer period.

Isobel Singh, Event Director: How do you think market uncertainty, particularly tariffs, is impacting oil and gas supply chains? Have operators successfully "proofed" their supply chains?

Matthew Bernstein: That's a great question. From my vantage point with US operators, the interesting thing is that while there's a fear that tariffs on steel and other critical drilling materials will increase well costs and offset efficiency gains, what we see as more impactful on the cost side is demand destruction for services. This demand destruction is a direct result of market uncertainty and its impact on oil demand.

For example, if the net impact of tariffs on the actual cost of drilling and completing a new well in the US is a low single-digit percentage, that's often offset by service providers, especially drillers, needing to lower their prices to compete. We anticipate declining day rates for drilling services because companies are outlining plans to drop rigs and frac fleets. With less demand for these services, providers will have to reduce their costs. So, overall, we see the market uncertainty as net deflationary for US shale drilling and completion costs. The impact stems more from the market uncertainty and demand destruction itself, rather than solely the direct physical tariff costs.

Isobel Singh, Event Director: To what degree should investor expectations and regional variations in breakevens determine operational excellence strategies?

Matthew Bernstein: It's a good question, and there are some misconceptions around US shale breakeven costs. Companies might cite $40-$50 breakevens for new activity, and from a fundamental upstream perspective – just drilling and completing a new well in, say, the Permian – that can be true, even including overhead like transportation and taxes. So, yes, you can operate new activity at low oil prices and still break even.

However, the larger impact comes from corporate items. Companies now have high capital return requirements; they might be targeting an 18-30% discount rate for new investments. Dividends and buybacks alone cost publicly traded US shale firms over $9 per barrel of net produced oil last year. Add in interest payments on debt from new investments, and suddenly that $40-$50 breakeven starts looking more like $60 or more when you consider the price needed to deliver these required returns and maintain modest growth.

Regarding regional variations, it's almost counterintuitive. We've seen more actual downward activity adjustments from Permian players than from those in other US oil basins like the Rockies or Eagle Ford, even though Permian wells are more commercial with lower fundamental well-level breakevens. This is because activity was already much lower in those other plays. Very few players there were guiding for growth initially. Companies in other regions might be willing to drill wells that don't hit a specific hurdle rate to keep production relatively flat, rather than dropping a rig or two and seeing production completely decline, which would also deteriorate their operating costs. In the Permian, you can drop a couple of rigs and still potentially maintain production, which isn't always the case elsewhere.

Overall, while the low to mid-$60s WTI range won't outright destroy the business model, it certainly puts pressure on companies to maintain the consistent returns and modest growth investors have become accustomed to, forcing tough decisions.

Isobel Singh, Event Director: Finally, what are you most looking forward to at the upcoming Operational Excellence in Oil & Gas Summit?

Matthew Bernstein: I'm really looking forward to engaging directly with the industry and the operators themselves. It's crucial to hear firsthand how they are embracing and dealing with this market volatility. From what we've observed publicly and through our work, there's some variation in how operators are making these tough decisions. I'm keen to learn what particular strategies are most important for the corporation, for their employees, and for their shareholders and how they plan to mitigate these larger macro concerns in the market. I’m also looking forward to offering Rystad Energy’s insights on these key questions to the teams and executives present at the conference. These are insights we have gained through interactions with the industry as well as our proprietary data and models, incorporating inputs from a wide variety of products including upstream, oil and gas markets and supply chain.

Learn more from Matthew Berntein at the 16th Annual Operational Excellence in Oil & Gas Summit in Houston this November. Learn more about Matthew's Day 2 opening keynote in the 2025 Event Guide.