Analyst: Data Centers Create New Competition for O&G Players

Oct. 31—Permian Basin energy companies will be adapting to an economic environment reshaped by soft commodity prices, trade, geopolitical uncertainty and rising demand for energy to power data centers.

Nathan Nemeth, principal analyst for lower 48 upstream at Wood Mackenzie, addressed the outlook during the recent Hart Energy Dug Permian conference.

"One of the big takeaways from the conference and from speaking with operators was their pragmatic tone around prices, but also their optimism about efficiency gains and controlling costs," Nemeth said. They want to be more competitive while finding ways to improve production. ExxonMobil has its proppant, Chevron is developing a surfactant. They want to be more efficient and improve recovery. There's a lot of resource remaining that can't be technically extracted at the moment. Given the size of the prize, companies will push to make the Permian Basin more competitive and extend its runway."

He told the Reporter-Telegram it will be an interesting environment with oil prices expected to hover around $55 a barrel in 2026 and 2027. But that creates opportunities, he said.

Nemeth predicted the Permian Basin will see additional consolidation, though future merger and acquisition deals will depend on the size of the transactions. He said his company has observed portfolio fine-tuning following large M&A transactions and that is expected to continue.

The Permian Basin rig count has fallen 45 rigs since March, which leads the national decline, and Wood Mackenzie expects activity to continue trending lower through the end of the year, but at a slower pace. Nemeth said softer activity levels are muting the impact of cost inflation because tariffs have increased prices for oil country tubular goods.

"Prices are a little higher, but we're not seeing significant cost increases," he said, adding that imports are on track to increase this year despite tariffs. Still, the tariffs and need for a sustainable service sector limit further cost reductions. He predicted the industry will turn to longer laterals and a renewed focus on eliminating unnecessary capital expenditures.

The outlook for the Permian Basin remains strong and its increasing natural gas production will keep it resilient, Nemeth said. With demand rising for liquefied natural gas exports and power generation for data centers, "I think there will be a big push for natural gas monetization in the Permian Basin. With the proper infrastructure, producers can see natural gas as a revenue line item."

Already, he said, energy companies such as Liberty, ProPetro and Halliburton are moving into the power generation space, providing reciprocating engines to generate power. ExxonMobil and Chevron are also moving into the space, he added.

Market fundamentals are expected to support commodity prices beyond 2027, leading to renewed growth in the Permian Basin.

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