Dennis Kissler, BOK Financial Securities
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Dennis Kissler is senior vice president of trading for BOK Financial Securities. He is based in Oklahoma City.

President Donald Trump’s pick for Treasury secretary, Scott Bessent, has proposed a three-pronged economic plan that involves increasing economic growth to 3%, cutting the budget deficit to 3% of gross domestic product (GDP) and increasing U.S. energy production by 3 MMbbl/d.

The last point sounds like good news for the U.S. oil industry; however, before anyone celebrates, there are overarching questions to consider: Can oil production be increased by that level and what are the challenges of doing so?

Running out of ‘good rocks?’

Many Americans have an antiquated view of oil and gas: They think that these commodities are not only abundant now but also that they will always be reliable, easy to tap into and inexpensive. However, we in the energy industry know that this is not the case.

Yes, the U.S. is the biggest oil producer in the world today, churning out about 13 MMbbl/d, but that doesn’t mean that the supply is limitless or, moreover, that it would be advantageous for oil producers to increase production by the level proposed. After all, there’s a lot of risk in the energy business and a lot of capital that must be spent to increase production, while at the same time the inflow of outside money that we saw five to eight years ago is no longer there.

For instance, many people don’t realize the amount of depletion (life of a productive well)—particularly in the Permian Basin, which accounts for approximately 40% of U.S. oil production. To put it simply, we’re running out of good rock formations—the “low-hanging fruit” of hitting long lateral wells.

As oil producers move west toward New Mexico, they’re still hitting some of these longer lakes, but their depletion rates are much sharper than what we’ve seen in the past. For these reasons, some in the oil industry believe that most of the major production out of the Permian has already been achieved. Wells are no longer going to come online and produce for 30 or 40 years economically like they did in the past. In my opinion, if the Permian is not at peak production now, it’s very close to it. When that happens, oil production levels can only go down from there.

Restrictions and price points

As a result, oil producers likely will have to start looking at other places to drill in the future, such as in the Gulf of Mexico—recently renamed the Gulf of America by President Trump—and Alaska, especially if the U.S. is to produce an additional 3 MMbbl/d. When that happens, there will be an entirely different price point to produce crude, and that’s another factor that many people in the U.S. don’t realize.

Moreover, before leaving office in January, former President Joe Biden banned future oil and natural gas leasing in the entire U.S. East Coast, the eastern Gulf of Mexico, the Pacific off the coasts of Washington, Oregon and California, and additional portions of the Northern Bering Sea in Alaska—a total of more than 625 million acres.

Those restrictions likely can’t be reversed immediately. Furthermore, from what I understand, some of the areas that are already leased in the Gulf may have some protected drilling areas that can be tapped. Nevertheless, these restrictions altogether stand in the face of a “drill, drill, drill” mentality and may hinder increasing production by the level proposed in the 3-3-3 plan.

In sum, it’s not as easy as the new presidential administration simply reversing the decisions made by the past administration.

Where will the money come from?

Finally, there’s access to capital to consider. On one hand, many believe that there will be less regulation of the energy and financial services industries under the Trump administration, which should free up some capital for energy lending. On the other hand, that doesn’t erase the fact that access to capital has become more expensive and more competitive in recent years. The number of financial institutions involved in energy market lending has shrunk significantly since the pandemic.

Meanwhile, oil companies have had to contend with greater expenses from both inflation and high interest rates. Although inflation has come down significantly from its peak, material costs are still high. (They’re just not rising as quickly as they were before.)

The Fed has lowered interest rates somewhat, but rate-cut expectations for this year have come down. Oil companies will continue to face these higher expenses amid a tighter lending landscape than they were accustomed to pre-pandemic.

In sum, the U.S. can “drill, drill, drill” all it wants, but you can’t Trump the rocks—or capital constraints. Achieving a production rate of an additional 3 MMbbl/d is not impossible, but it may be easier said than done.

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