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Shale’s Message to OPEC: We Are Coming Back
Energy

Shale’s Message to OPEC: We Are Coming Back

Less than a year ago, major shale firms were saying they needed oil above $60 a barrel to produce more; now some say they will settle for far less in deciding whether to crank up output after the worst oil price crash in a generation.
Their latest comments highlight the industry’s remarkable resilience, but also serve as a warning to rivals and traders: A retreat in US oil production that would help ease global oversupply and let prices recover may prove shorter than some may have expected, Reuters reported.
Continental Resources Inc, led by billionaire wildcatter Harold Hamm, is prepared to increase capital spending if US crude reaches the low- to mid-$40s range, allowing it to boost 2017 production by more than 10%, chief financial official John Hart said last week.
Rival Whiting Petroleum Corp, the biggest producer in North Dakota’s Bakken formation, will stop fracking new wells by the end of March, but would “consider completing some of these wells” if oil reached $40 to $45 a barrel, Chairman and CEO Jim Volker told analysts.
Less than a year ago, when the company was still in spending mode, Volker said it might deploy more rigs if US crude hit $70.
While the comments were couched with caution, they serve as a reminder of how a dramatic decline in costs and rapid efficiency gains have turned US shale, initially seen by rivals as a marginal, high cost sector, into a major player, and a thorn in the side of big OPEC producers.
While the worst oil downturn since the 1980s sounds the death knell for scores of debt-laden shale producers, it has also hastened the decline in costs of hydraulic fracturing and improvements of the still-developing technology.
For example, Hess Corp., which pumps one of every 15 barrels of North Dakota crude, cut the cost of a new Bakken oil well by 28% last year.
While Deloitte auditing and consulting warns that a third of US oil producers may face bankruptcy, leading shale producers say their ambitions go beyond just outrunning domestic rivals.
“It’s no longer enough to be the low cost producer in US horizontal shale,” Bill Thomas, chairman of EOG Resources Inc, said on Friday. “EOG’s goal is to be competitive, low-cost oil producer in the global market.”
Thomas did not say what price would spur EOG to boost output this year, but said it had a “premium inventory” of 3,200 well locations that can yield returns of 30% or more with oil at $40.
Apache Corp, forecasts its output will drop by as much as 11% this year, but said it would probably manage to match 2015 North American production if oil averaged $45 this year.

 

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