By Avi Salzman

U.S. oil companies are starting to talk about a subject that's been taboo in the industry for nearly a decade: production growth. So far, investors don't seem to like it.

Late on Monday, producer Diamondback Energy lifted its production growth estimates by just a smidgen above its prior guidance, to take advantage of the soaring prices caused by the Iran War. That seems like a perfectly normal response to the largest supply disruption ever, but it goes against years of dogma that says U.S. producers should always resist the urge to raise production for fear of flooding the market.

Diamondback stock fell 2.6% in midday trading on Tuesday. Exxon Mobil, by comparison, was up 0.9%, and the State Street Energy Select Sector SPDR ETF was up 0.6%.

Diamondback, one of the largest producers in the Permian Basin of Texas and New Mexico, said it plans to hold its production approximately flat for the rest of this year at over 520,000 barrels of oil per day, up 3% from its prior guidance. To maintain that pace, it expects to add two to three rigs -- about 1% of the total number of rigs operating today in the Permian Basin.

Diamondback notes that the Iran War caused global oil supply to fall by more than 8% in March, and has reduced it even more since then. The shortfall is forcing countries in Asia to ration cooking fuel and airlines in Europe to cancel flights because of a jet fuel shortage.

"If that isn't a signal to grow production in an advantaged area like the Permian Basin, then I don't know what is," said CEO Kaes Van't Hof on Diamondback's earnings call early Tuesday.

To free up cash for such things as production growth, acquisitions and other things, Diamondback changed its shareholder return policy, which had previously committed the company to returning a set amount of its cash flow to shareholders every quarter come rain or shine.

In conjunction with that change, Diamondback raised its "base" annual dividend to $4.40 per share, giving it a dividend yield of 2.1%. The new policy is an attempt to be "flexible" as situations change, the company said, but some shareholders appear to be revolting.

The change "may disappoint certain investors who prefer the formulaic return framework," wrote Siebert Williams Shank analyst Gabriele Sorbara. But Sorbara thinks the stock ought to be rising instead because "we expect FANG to continue to deliver best-in-class capital returns going forward."

Most U.S. companies have not committed to adding rigs or boosting production beyond their prior 2026 targets from before the war, so the Diamondback news is a big deal. Exxon and Chevron both stuck to their prior activity targets last week. ConocoPhillips said it would add one rig in the Permian just to keep pace with its fracking momentum, and didn't even boost overall production estimates -- in fact, Conoco's total production guidance dropped for 2026 because of a shortfall at the company's operations in the Middle East. Conoco stock nonetheless fell on the day of its earnings report.

Investor anxiety about production growth in the Permian Basin has a long history. For most of the U.S. shale boom, companies ramped up production on the first sign of demand growth. The market would get oversupplied with oil and profits would fall. The Permian has seen dozens of bankruptcies before.

That said, this is a very different situation. Oil prices aren't just spiking -- the futures curve has risen too, with contracts expiring in a year up more than 25% since the start of the war. Companies can hedge their price exposure out into 2027. Diamondback appears to be making a rational choice that should pay off as prices stay high during the war, and afterward too as countries rebuild their inventories. Sorbara sees the stock rising to $224, up from $208 today.

Write to Avi Salzman at avi.salzman@barrons.com

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May 05, 2026 13:15 ET (17:15 GMT)

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