Capital expenditures across the largest U.S. oil and gas producers fell 49 percent year over year even as production hit a study-period high. That’s the central finding of EY’s annual US Oil and Gas Reserves and Production Benchmarking Study, released September 9 and based on five years of data from the 30 largest publicly traded exploration and production companies, a group representing about 43 percent of total U.S. oil and gas production.
The two numbers don’t usually move in opposite directions this sharply. Oil production climbing to a record while spending is cut nearly in half points to an industry drawing more out of the wells it already has rather than chasing new ones.
Where the Money Stopped Going
Exploration spending fell 11 percent to $4.8 billion and now represents just 3 percent of total capital expenditures across the group. M&A spending dropped 70 percent as the industry moved past the wave of megadeals that reshaped the sector over the prior several years. Total capital expenditures, combining exploration, development, and acquisitions, fell 49 percent year over year.
Revenue still grew 7 percent, but pretax operating results fell 2 percent anyway, as lower commodity realizations compressed margins even as the top line improved. The only way that combination makes sense is if the extra revenue came from pumping more, not from getting paid more for it.
The Number That Should Worry Someone
Reserve replacement fell below 100 percent for the first time since 2021, meaning the group collectively pulled more oil out of the ground than it added back in new proved reserves. Natural gas told a different story: gas reserves reached a five-year high, supported by new discoveries, rising exports, and growing electricity demand, according to EY’s own release.
Matt Melnar, EY Americas Oil & Gas and Chemicals Assurance Leader, framed the split directly: oil production and reserve replacement are now moving in different directions, and reserve replacement metrics alone no longer tell the full story. “Producers are engaged in a balancing act between production goals, shareholder returns, and long-term portfolio resilience as they make investment decisions,” Melnar said.
Is This Actually a Problem?
A 49 percent capex cut sounds like retreat. In context, it reads more like a specific strategic choice: after years of consolidation and portfolio building through M&A, the industry is shifting its attention to running what it already owns more efficiently rather than continuing to buy or explore for more. That’s consistent with the broader capital discipline theme investors have rewarded across the sector for several years now, producers who spend less to produce the same or more, rather than producers who spend aggressively to grow reserves for their own sake.
The exploration figure is the sharpest illustration of that shift. Spending only 3 percent of total capital on exploration, down from levels that would have looked unremarkable five years ago, signals a group of companies betting that developing known assets more efficiently beats the higher-risk, higher-cost work of finding new ones. That bet works as long as commodity prices and drilling efficiency both hold up. It gets harder to defend if either one turns against producers at the same time reserve replacement is already running below 100 percent.
The bigger picture is straightforward: record production and lower spending can coexist, at least for now. Whether that balance holds, or reserve replacement eventually forces a different strategy, is the real question hanging over this data.
Who Actually Feels This
None of this is really about the operators. It’s about the companies that get paid to drill, complete, and service the wells those operators own. A 49 percent cut in total capital spending, weighted heavily toward exploration and new development, is going to be felt hardest by whoever depends on new wells getting drilled.
Start with the exploration number. Three percent of capital across a group that produces 43 percent of the country’s oil and gas is not a rounding error. It’s a group that has, for the moment, largely stopped looking for new reserves. Seismic work, exploratory drilling, first-time completions, that end of the business is going to feel thinner for a while.
The M&A slowdown cuts a different way, and it’s not all bad news. Fewer deals means fewer newly merged companies picking winners and losers among their inherited service contracts, which has been a real source of churn for OFS companies over the past few years. Less M&A activity, at least for now, probably means more stability in existing vendor relationships than upheaval.
Where there’s real opportunity is in what EY is calling a focus on existing assets. Operators spending less to find new oil and more to squeeze more out of what they’ve already got is good news for workover crews, well optimization work, artificial lift, anything that keeps a producing well productive longer. It’s a worse environment for companies built around new-well drilling and completion, and a better one for companies built around keeping older wells running.
The reserve replacement number is the one worth watching longest. Pulling oil out faster than you’re replacing it isn’t something an operator can do forever. At some point that either forces a change in strategy or gets bailed out by higher prices. Service companies with multi-year contracts tied to a particular operator’s production plan should treat today’s capital discipline as the new normal rather than a phase, and keep an eye out for the moment reserve pressure starts pushing spending back toward exploration.
None of This Accounts for the War
EY says as much itself: the study covers 2025 and doesn’t capture anything that’s happened since the Strait of Hormuz conflict started. Brent has traded above $100 for much of this year. That’s a very different price environment than the one these numbers were generated in.
So which way does that cut? Higher prices could easily talk some of these same producers into loosening up again, chasing bigger margins while they’re on the table. Or the discipline holds anyway, if this really was a shift in how the industry thinks about capital rather than just a reaction to a rough couple of years. Next year’s study will tell us which one it was.
