HOUSTON – Now, Saudi Oil Minister Ali Al-Naimi will for the first time face the sufferers of his decision to help keep oil pumps flowing despite a global glut: U.S. shale oil producers struggling to survive the worst price crash in a long time.
While soaring U.S. shale output due to the hydraulic fracturing revolution led to oversupply, many blame the 70-percent price collapse previously 20 months primarily on Naimi, viewed as the oil market’s most influential policymaker.
During his keynote in the annual IHS CERAWeek conference in Houston, Naimi is addressing U.S. wildcatters and executives who’re stuck in a zero sum game.
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Al Naimi: “they only invite me in a crisis.” He last attended in 2009 #ceraweek
– Yadullah Hussain (@Yad_FPEnergy) February 23, 2016
Al Naimi: I believe I even have a ‘peak oil’ T-shirt #CERAWeek
– Yadullah Hussain (@Yad_FPEnergy) February 23, 2016
“OPEC, instead of cutting production, they increased production, and that’s the predicament we’re in right now,” Bill Thomas, chief executive of EOG Resources Inc, one of the largest U.S. shale oil producers, told an industry conference last week, talking about 2015.
It will be Naimi’s first public appearance in the United States since Saudi Arabia led the business of Petroleum Exporting Countries’ shock decision in November 2014 to help keep heavily pumping oil despite the fact that mounting oversupply had been sending prices into free-fall.
Naimi has stated it was not an make an effort to target any specific countries or companies, merely an effort to protect the kingdom’s market share against fast-growing, higher-cost producers.
It so happens that U.S. shale was the largest new oil frontier on the planet, with much higher costs than cheap Saudi crude that can be produced for some dollars a barrel.
“I’d much like to hear it from him,” said Alex Mills, president from the Texas Alliance of Energy Producers. “It ought to be something of interest to the leaders in Texas and in Washington,” if in fact his aim is to push aside U.S. shale producers, Mills said.
Last week’s surprise agreement by Saudi Arabia, Qatar, Russia and Venezuela to freeze oil output at January levels – near record highs – didn’t offer much solace and also the global benchmark Brent crude ended the week lower at $33 a barrel and U.S. crude futures ended unchanged at just below $30.
Prices fell sharply after Iran, the main hurdle to the production control in the zeal to recapture market share lost to sanctions, welcomed the program without commitment. Iraq was also non-committal.
Many U.S. industry executives realize that all is fair for each other, war and the oil market, but “the Saudis have probably overplayed their hand,” said Bruce Vincent, former president of Houston-based shale oil producer Swift Energy, which filed for bankruptcy late this past year.
A PAINFUL TIME
The fact that OPEC members are speaking with each other offers a ray of hope, according to some industry figures, a sign the kingdom’s own fiscal pain could prompt it to alter tact and lead efforts to reach a deal. , Standard & Poor’s downgraded Saudi Arabia’s credit rating.
“The pain is at a threshold right now. Individuals are now willing to sit down and discuss possible remedies to that pain,” Mills said.
Texas, where oil production has more than doubled over the past 5 years thanks to the Eagle Ford and Permian Basin fields, is feeling acute pain.
The state lost nearly 60,000 gas and oil jobs between November 2014 and November 2015, according to the Texas Alliance’s most recent data. Only 236 rigs are still actively drilling wells in the state, down from more than 900 at the end of 2014, Baker Hughes data showed.
Financial distress among U.S. producers has deepened. A lot more than 40 U.S. energy companies have declared bankruptcy because the start of 2015, with more looming as lenders are going to cut the value of companies’ reserves, often used as collateral for credit.
Anadarko Petroleum Corp and rival ConocoPhillips both cut their dividends this month, unusual moves that showed financial stress.
THE TIGER HAS TEETH
The before Naimi spoke at CERAWeek, seven years ago, OPEC was slashing output to lift prices that sank to $40 a barrel amid the global financial crisis, and that he railed against speculators who he blamed for the price plunge.
Few oil executives anticipated Naimi’s willingness to allow prices collapse now.
Some of them, such as Harold Hamm, the main executive of Oklahoma-based Continental Resources, even called his bluff.
Shortly before the November 2014 OPEC meeting, Hamm sold Continental’s hedges, calling OPEC a “toothless tiger.”
In an investor get in touch with August, Hamm said he expected OPEC to begin cuts in September, adding, “we believe that may be the very first of many.” Those haven’t yet come.
A Continental spokeswoman declined to comment on whether Hamm would attend Naimi’s speech.
Continental shares have tumbled a lot more than 60 % throughout the downturn, cutting Hamm’s personal fortune by more than $10 billion since 2014.
While producers may be more cautious now than before, some are still betting that OPEC will bail them out.
EOG’s Thomas reckons prices will skyrocket up to $80 a barrel within the second of the season – partly, he says, because OPEC will ultimately have to yield when confronted with fiscal strains.
“The whole world is under stress,” he said. “I don’t care who you are. Even the Saudis they are under stress.”
? Thomson Reuters 2016
