Permian Producers Hold Steady on Drilling Despite Surging Oil Prices
Dallas Fed survey reveals rising activity but flat hiring as operators weigh geopolitical uncertainty against expansion plans
Oil prices have surged past $100 per barrel amid escalating tensions in the Strait of Hormuz, yet Permian Basin producers are resisting the urge to ramp up drilling activity. The Federal Reserve Bank of Dallas’s first-quarter 2026 Energy Survey, released in late March, found that the business activity index jumped to 21.0 from negative 6.2 in the prior quarter—but employment levels remained essentially flat and nearly 70 percent of large exploration and production firms reported no changes to their 2026 drilling plans.
The disconnect between rising oil prices and restrained drilling activity reflects a structural shift in how Permian Basin operators approach capital allocation. After years of investor pressure to prioritize returns over growth, producers have embraced a discipline that even triple-digit crude prices have not yet loosened. The Dallas Fed survey’s outlook uncertainty index climbed to 53.7 from 43.4 in the fourth quarter of 2025, underscoring the caution permeating the sector.
Geopolitical developments have only reinforced that caution. The escalation of U.S.-Iran tensions, including threats of strikes on Iranian energy infrastructure, pushed West Texas Intermediate futures into their steepest backwardation on record in early April. JP Morgan analysts warned that sustained disruption to Strait of Hormuz flows could drive prices above $150 per barrel through mid-May. Yet operators appear to view the price spike as potentially temporary, insufficient to justify the long lead times and capital commitments required for significant drilling program expansions.
The Permian Basin remains the engine of U.S. crude production, with the Energy Information Administration projecting output to rise by 430,000 barrels per day to reach 6.6 million barrels per day in 2026. However, a sustained $100-plus oil environment could push production toward 7.3 million barrels per day by 2027, according to analysts—a scenario that would test the region’s already strained takeaway infrastructure.
The restraint in drilling activity has immediate implications for the midstream sector. Key crude oil pipeline corridors from the Permian to the Gulf Coast—including routes to Corpus Christi and Houston—are already operating at or near full utilization. Analysts project that even modest production increases could widen pricing differentials between Midland and Gulf Coast markets, signaling emerging bottleneck pressure.
Pipeline expansion projects are gaining momentum in response. The Gray Oak and potential Cactus III expansions could advance more quickly if higher prices persist and production volumes continue to rise. On the natural gas side, Kinder Morgan’s Gulf Coast Express expansion, a roughly $455 million project adding approximately 570 million cubic feet per day of capacity, is expected to come online around mid-2026. The 2.5 billion-cubic-foot-per-day Blackcomb Pipeline is anticipated to enter service by late 2026.
Cost pressures remain a factor in operator decision-making. While the Dallas Fed survey indicated some easing in input and operating cost pressures compared to prior quarters, costs remain elevated. Survey respondents projected an average WTI price of $73 per barrel on a two-year horizon—well below current spot prices—suggesting that executives view the current price environment as unsustainable and are planning accordingly.
The flat employment reading in the Dallas Fed survey carries significant implications for energy sector workforce dynamics. Despite rising activity levels and surging revenues, operators are choosing to extract more output from existing teams rather than expand headcount. The survey noted a sharp increase in employee hours worked and a notable rise in wages and benefits, indicating that current personnel are absorbing higher workloads.
This approach may prove difficult to sustain. If production does accelerate in response to prolonged high prices, the gap between operational demands and available talent could widen. Developments of this scale typically increase demand for experienced drilling engineers, completions specialists, and field supervisors with Permian-specific expertise. Midstream infrastructure expansion projects, including the Gulf Coast Express and Blackcomb pipeline buildouts, may generate sustained demand for pipeline engineers, project managers, and construction supervisors throughout the second half of 2026.
The survey also suggests that smaller exploration and production companies are more inclined to expand, with nearly 60 percent reporting plans to increase drilling this year. This divergence between large and small operators could create competition for experienced geologists, reservoir engineers, and land professionals in the Midland-Odessa corridor and surrounding operational hubs.
Industry observers will watch several key indicators in the coming months. The trajectory of U.S.-Iran tensions will largely determine whether oil prices remain above $100 or retreat toward the $73 level that executives project over the medium term. The pace at which smaller operators translate expansion plans into actual rig deployments will signal whether the current production discipline is beginning to crack.
Pipeline utilization data from the Permian to the Gulf Coast will serve as an early warning indicator for infrastructure constraints that could cap production growth regardless of price signals. The Federal Reserve Bank of Dallas’s second-quarter energy survey, expected in June, will provide the next comprehensive read on whether the hiring freeze is holding or whether operators have begun expanding their workforce in response to sustained demand. Permian Basin production data from the EIA’s monthly Drilling Productivity Report will remain a closely watched benchmark for the sector’s growth trajectory.
