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Tillerson: $50-60 likely for 3-5 years Lance, Sheffield agree, but IEA, Saudi minister, OPEC, Pouyanne warn massive investment cuts will result in oil supply shortfall KAY CASHMAN Petroleum News
While the International Energy Agency, OPEC, Saudi Arabia’s oil minister and Total’s chief executive have warned of a looming oil supply crunch due to massive industry spending cuts designed to help producers weather a prolonged price downturn, ExxonMobil, ConocoPhillips and Pioneer’s top executives do not think a supply glut with significantly higher prices is in the picture.
In its annual World Energy Investment report in September, IEA said that oil companies have cut investment in new production by 25 percent in 2014 and 24 percent this year. Next year they could cut spending for an unprecedented third year in a row, which the Paris-based agency said could lead to an oil supply shortfall.
Saudi Arabia’s Minister of Energy and Industry Khalid Al-Falih and Patrick Pouyanne, the head of French oil giant Total SA, and the Organization of Petroleum Exporting Countries agree with IEA, warning that the market could face an oil shortage if investment continues to decline.
But Rex Tillerson, chief executive of ExxonMobil, told attendees at the mid-October Oil & Money conference in London that production from U.S. tight oil regions will offset a shortfall from other producers and keep prices in the $50-$60 per barrel range for years to come.
Tillerson argued that improving technology and cost cuts will allow companies to produce more oil at prices as low as $40 a barrel, preventing a price “blow out” in the future. He said the United States, the world’s third largest oil producer behind Saudi Arabia and Russia, has become a swing producer that will be able to respond quickly to any global supply shortage.
Falling costs in the U.S.’s tight oil regions will counteract OPEC’s renewed commitment to maintain reasonable output levels, Tillerson said. OPEC members pump approximately 40 percent of the world’s oil.
“I don’t necessarily have the view that we are setting ourselves up for some big collapse in supply within the next three, four, five years,” he was quoted as saying in press coverage of the annual event, noting that large tracts of U.S. oil-producing acreage will become economical at $60 a barrel.
“I don’t quite share the same view that others have that we are somehow on the edge of a precipice. I think because we have confirmed viability of the very large resource base in North America ... that serves as enormous spare capacity in the system,” he was quoted as saying.
ConocoPhillips’s Ryan Lance agrees Other speakers at the conference echoed Tillerson’s views, Bloomberg reported, including ConocoPhillips CEO Ryan Lance, who said new wells were viable at $40-per-barrel-oil in the Permian, Eagle Ford and Bakken basins.
Per a Bloomberg report, oil production in the Permian basin can grow by 300,000 barrels a day for the next 10 years “easy” by adding just five drilling rigs, said Scott Sheffield, chief executive officer of Pioneer Natural Resources Co.
Tight oil “doesn’t take mega-project dollars and it can be brought on line much more quickly than a 3-4 year project,” Tillerson said. “Never bet against the creativity and tenacity of our industry.”
Saudi Minister Falih argues market is balancing Their position differed considerably from that of Saudi Arabia’s energy minister, who Reuters reported minutes earlier in the conference had warned of impending oil supply challenges due to the continued drop in investment.
“Market forces are clearly working. After testing a period of sub $30 prices the fundamentals are improving and the market is clearly balancing,” Falih said.
“On the supply side, non-OPEC supply growth has reversed into declines due to major cuts in upstream investments and the steepening of decline rates,” the minister was quoted by Reuters as saying.
“Without investment, that trend is likely to accelerate with the passage of time to the point that many analysts are now (ringing) warning bells over future supply shortfalls and I am in that camp,” Falih said.Although OPEC and Russia’s plan to freeze or possibly cut production will help reduce a huge overhang of oil supplies and stimulate new investments, the investments will not come soon enough to avoid a shortfall, Reuters reported the minister as saying in his presentation.
Russia is the world’s second largest oil producer.
Editor’s note: Tillerson has worked for Exxon for 40 years and is due to retire before the end of first quarter next year.
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