Oil is going to rebound. That is the view of both Harold Hamm, a leading figure in the US shale industry, and Ali al-Naimi, the veteran Saudi oil minister. However, both have sharply contrasting views on how that recovery will come about, the Finanacial Times reports.
Oversupply of oil has caused a near-50 per cent fall in prices during the past six months, and producers worldwide have been locked in a battle over who will cut output to bring the market back into balance.
Naimi suggested in an interview with the Middle East Economic Survey this week that he expected higher-cost production, in Russia, Brazil, West Africa and the shale oilfields of the US, to be squeezed out of the market. Oilfields in the Gulf, he said, had production costs of just $4-$5 per barrel, and in any market economy, “high-efficiency producing countries are the ones that deserve market share”.
He was confident the Gulf countries, and especially Saudi Arabia, could afford to hold out. Those comments were described by Hamm as “bravado”.
Hamm argued that pressure was building on Saudi Arabia and other large oil-producing countries because of their need to fund expensive social welfare programmes.
“They can’t live with these prices,” he told the Financial Times. “They can talk pretty bravely, until people are knocking on their door.” Either they would decide voluntarily to cut their production, he suggested, or political instability would do it for them.
Almost a month on from the Opec ministerial meeting on November 27 that rejected calls for production cuts and sent crude prices into freefall, the weight of evidence seems to lie more on Naimi’s side.
Private sector oil companies have been announcing sharp cutbacks in their planned capital spending, with US shale producers in the vanguard. ConocoPhillips announced a cut of about 20 per cent for next year, compared with 2014, as did Marathon Oil.
Hamm’s Continental Resources, where he is chief executive and has a 68 per cent stake, announced on Monday evening it would spend $2.7bn on wells and other investment next year. That is 40 per cent less than its expected spending for 2014, and also about 40 per cent less than its previous plan for 2015, announced in October. That plan was itself a reduction from the previous projection of $5.2bn, announced in September.
Lower costs for drilling, hydraulic fracturing and other services are expected to take some of the strain.
Continental thinks it can cut the cost of each well by at least 15 per cent next year, as reduced activity forces service companies to cut their rates.
However, the scale of its spending cuts still means that it will not be able to drill as many wells as it had hoped. It plans to keep 31 rigs running on average next year, down from 50 now.
Across the US shale industry, signs of a slowdown are mounting.
The total number of rigs running in the Williston basin, which includes the Bakken shale of North Dakota where Continental produces most of its oil, is already down 9 per cent from its peak in October to 180, according to Baker Hughes, the oil services company. The numbers of rigs running in the Eagle Ford shale and the Permian basin, in the south and west of Texas respectively, have also fallen.
