And that is why the "measured" production response problem is, to put it bluntly - unsolvable.Īnd I am not picking on Continental. Like so many other oil producers' CEOs, Hamm apparently wants a "measured" response by every company but his own.
So I would ask Harold Hamm - if you are cash neutral at $55/bbl, does it make sense to grow production ~20% this year with oil currently at $48.49/bbl? Sure the company has some hedges, but you understand my point. The company says it will be cash neutral at $55/bbl. Source: CLR's Raymond James Presentation (available here ).Ĭontinental has been extremely successful in pivoting from the Bakken to the SCOOP and STACK plays in Oklahoma (see my article Continental Brings In Some Monster $TACK Meramec Wells). Meantime, Hamm's own company - Continental Resources ( NYSE: CLR) - has a $1.9 billion budget for 2017 and expects exit production to grow in a range of 19-24% to 250,000 to 260,000 boe/d: Note what Al-Falih, the Energy Minister of Saudi Arabia said at CERAWeek: it would be "wishful thinking" to expect that Saudi Arabia and OPEC "will underwrite the investments of others at our own expense" through production cuts. Until, of course, prices collapse again - and they certainly will. So back to Hamm's statement - there is no way to insure a domestic "measured" production response to OPEC's cut. They are all wanting to grow production for their shareholders - not to mention that in many cases executive compensation is tied to production growth (whether or not that production growth is actually profitable). In the U.S., you have a handful of very large oil companies, dozens of mid-sized producers, and over a hundred small-sized companies and they are all looking out for #1 (i.e. The reason is simple: OPEC countries have a centralized decision-making process that can control production output. It's like watching a re-run of a disaster waiting to happen. Meantime, domestic crude oil storage levels have reached all-time highs and are significantly above the rolling 5-year average: production broke through the 9 million bpd level in February and was up to 9.09 million bpd as of last week. However, the response to the OPEC production cut announcement was both quick and powerful as it took only 7 months before U.S. After oil prices swooned and the rig count collapsed, production fell to under 8.5 million bpd in July of last year. domestic oil production most recently peaked at almost 9.6 million bpd in June of 2015. That, combined with easy access to capital from Wall Street, has spurred a quick and robust production response:Īccording to the EIA, U.S. Domestic shale producers then responded hedging future production to lock in a price of over $50/bbl.
Once OPEC made the decision to cut back production, oil quickly rose to over $50/bbl. Wall Street seems unconcerned with earnings (as in net income) and instead appears to focus on cash flow, even though that cash flow is tied directly to the (very risky) price of oil, and to a lessor extent - natural gas. Acquisitions continued - particularly in the hot Permian Basin. it's going to have to be done in a measured way, or else we kill the market.īut that's the problem in a nut shell: who is going to dictate that domestic oil production growth be done in a "measured way"?Įver since OPEC's decision to increase production in the fall of 2014 to drive prices down, domestic oil companies have continued to enjoy excellent access to debt and equity markets. industry could "kill" the oil market if it goes on another spending binge. Harold Hamm recently summed the situation up quite succinctly by saying the U.S.
#Idle oil tycoon saudi fields time update
For over two years, my outlook for oil prices has been "lower for much longer." Recent comments from oil executives at the recent CERAWeek conference cause me to update that view to " much lower for much longer."
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