Production growth in America’s premier oil basin, the Permian, is showing signs of reaching its geological limits, with industry experts projecting potential peak output by the end of this decade. While the region continues to drive U.S. oil production growth, several indicators suggest constraints are emerging in this crucial energy hub.
Recent data reveals a steady increase in the gas-to-oil ratio (GOR) in Permian wells, climbing from 34% in 2014 to 40% in 2024. This rise indicates declining reservoir pressure as more oil is extracted, leading to increased natural gas release from the formations. The concentration of wells in certain areas has accelerated this pressure decrease.
Industry leaders have begun acknowledging these limitations. Occidental Petroleum CEO Vicki Hollub anticipates U.S. production will reach its peak between 2027 and 2030, followed by a decline. ConocoPhillips’ CEO Ryan Lance expects a production plateau this decade, maintaining flat levels post-2030 before a gradual decrease.
A significant challenge facing Permian operators is water management. The basin produces approximately four barrels of water for every barrel of oil, substantially higher than other U.S. shale regions. This high water-to-oil ratio creates mounting operational costs and logistical complications for producers.
Despite these challenges, the Energy Information Administration projects continued growth in U.S. crude production, forecasting an average of 13.61 million barrels per day (bpd) this year, rising to 13.76 million bpd in 2026. The Permian’s output is expected to surpass 6.5 million bpd in 2025, up from over 6 million bpd in 2024.
However, the quality of remaining drilling locations is becoming a concern. Prime Tier 1 acreage, which offered the best production rates, is showing signs of depletion. New drilling areas are not expected to match the productivity of these initial sweet spots.
The increasing volumes of produced water present a growing challenge for operators. As noted by Shannon Flowers, Coterra Energy’s director of crude and water marketing, limited disposal and injection options are constraining operations, forcing companies to find alternative solutions for water management.
These geological and operational challenges coincide with economic pressures. Industry executives argue that current market conditions require higher oil prices to maintain production levels. One anonymous executive responding to the Dallas Fed Energy Survey emphasized that $70 per barrel has become the new break-even point, replacing the previous $50 benchmark.
The combination of rising water handling costs, increasing gas-to-oil ratios, and diminishing prime drilling locations suggests the Permian’s era of rapid growth may be approaching its natural limits. While significant resources remain, the economics and efficiency of extraction are becoming more challenging.
This evolving landscape has implications for U.S. energy policy and production forecasts. The current administration’s preference for $50 per barrel oil prices appears incompatible with maintaining production growth, according to industry observers. One executive warned that such price levels could trigger an immediate and significant decline in U.S. oil production, potentially exceeding one million barrels per day within months.
As the Permian Basin approaches these geological and operational constraints, the industry faces a complex balancing act between maintaining production levels, managing increasing operational costs, and addressing environmental concerns, particularly regarding water management and gas production.