The Pandemic Has Broken Shale and Left Oil Markets in OPEC Hands

[IsailedawayfromFR]

Kevin Crowley, David Wethe and Sheela Tobben
Sat, November 28, 2020, 6:00 AM CST
(Bloomberg) -- OPEC’s oil ministers have a few challenges to consider at a crucial summit next week, but for the first time in years the shale boom won’t be at the top of the list.

A devastating global pandemic and a reckoning with Wall Street appear to have broken the resolve of the shale wildcatters who turned the U.S. into the world’s biggest oil producer. Years of breakneck growth, at the expense of crude kingpins in the Middle East and Russia, have come to an end. If there was ever any doubt, it’s now abundantly clear who has the upper hand in the global oil market.

“In the future, certainly we believe OPEC will be the swing producer — really, totally in control of oil prices,” Bill Thomas, chief executive officer of EOG Resources Inc., the biggest independent shale producer by market value, said earlier this month. “We don’t want to put OPEC in a situation where they feel threatened, like we’re taking market share while they’re propping up oil prices.”

The shale industry’s prudence, also echoed by the CEOs of Pioneer Natural Resources Co. and Occidental Petroleum Corp., means that production will probably flatten after a steep plunge this year. U.S. oil output will end 2021 close to 11 million barrels a day, about the same as it is now, according to forecasters IHS Markit, Rystad Energy, Enverus and the U.S. Energy Information Administration.

“I see no more growth until 2022, 2023, and it will be very, very light in regard to the U.S. shale industry ever growing again,” Pioneer CEO Scott Sheffield, who’ll run the fourth-largest shale operation in the country after his company completes the takeover of Parsley Energy Inc., said in an interview.

That will surely come as a relief to OPEC and its allies.

At the start of 2020, the group’s efforts to control prices were facing increasing difficulties. The breakthroughs in horizontal drilling and fracking that ushered in the shale revolution made it look as though U.S. production growth might never end. Output surpassed 13 million barrels a day for the first time in February.

And Sheffield is an idiot and thinking only of himself and the company he heads.

That oil is not going anywhere and will be there when we need it, likely by a company other than Pioneer,  and a lot of present oil companies.

[catfish1957]

After working in this industry for almost 40 years, I will again restate.....   Anyone who knows or thinks they know directionally where hydrocarbon markets are going past a 3 month period are epic fools.  I'll just leave it at that.

[IsailedawayfromFR]

After working in this industry for almost 40 years, I will again restate.....   Anyone who knows or thinks they know directionally where hydrocarbon markets are going past a 3 month period are epic fools.  I'll just leave it at that.

[catfish1957]

Competent CEO's speak in terms of trends, capital expendiitures , and direct strategies they are taking their company as far as Exploration and Production programs.  Wierd that there is one like this one, who seems to have a crystal ball that can predict socio-ecomic, warfare, Cartel actions, and technological advances and state in a investor call that he knows where the market is going as far out as 2023.

Dumb.

[IsailedawayfromFR]

Competent CEO's speak in terms of trends, capital expendiitures , and direct strategies they are taking their company as far as Exploration and Production programs.  Wierd that there is one like this one, who seems to have a crystal ball that can predict socio-ecomic, warfare, Cartel actions, and technological advances and state in a investor call that he knows where the market is going as far out as 2023.

Dumb.

I went to school with Scott who is a smart guy and built up a very successful oil company.

I interpret his words as a lament his company will not grow and flourish.

It is ridiculous for him to say shale will no longer grow, as that genie cannot be put back into the bottle once oil prices go back up.

And under falling US production and more assertive OPEC control of prices, there is no question they will rise, and rise dramatically.

[catfish1957]

I went to school with Scott who is a smart guy and built up a very successful oil company.

I interpret his words as a lament his company will not grow and flourish.

It is ridiculous for him to say shale will no longer grow, as that genie cannot be put back into the bottle once oil prices go back up.

And under falling US production and more assertive OPEC control of prices, there is no question they will rise, and rise dramatically.

I am not that familiar with Pioneer.  I don't even know if it is privately owned.  If it is, or if he has overwhelming control of his shares, he has his right to an opinion.  This outspoken about a specific direction in the market that far out typically spooks investors.  I know I'd run from that level of specificity

[Fishrrman]

catfish proclaimed:
"After working in this industry for almost 40 years, I will again restate.....   Anyone who knows or thinks they know directionally where hydrocarbon markets are going past a 3 month period are epic fools.  I'll just leave it at that."

Once the Green New Deal gets a-goin', the only direction that most domestic hydrocarbon markets is gonna be goin', is ... "south".

Hopefully, I'll be proven wrong (and will enjoy being proven so).
But I call 'em as I see 'em, and that's what I see under the incoming harris-biden regime.

[IsailedawayfromFR]

catfish proclaimed:
"After working in this industry for almost 40 years, I will again restate.....   Anyone who knows or thinks they know directionally where hydrocarbon markets are going past a 3 month period are epic fools.  I'll just leave it at that."

Once the Green New Deal gets a-goin', the only direction that most domestic hydrocarbon markets is gonna be goin', is ... "south".

Hopefully, I'll be proven wrong (and will enjoy being proven so).
But I call 'em as I see 'em, and that's what I see under the incoming harris-biden regime.

How are the markets going to go south when we have ceded control of the price to OPEC once again who will throttle the US?

You do understand in spite of any GND that hydrocarbons will still be very much in demand, don't you?

The only ones that suffer are the taxpayers and electricity users who will wind up paying exorbitant amounts of money propping up an uneconomic green scheme while we are also shelling out tremendously for oil prices due to OPEC's cartel demands.

[catfish1957]

catfish proclaimed:
"After working in this industry for almost 40 years, I will again restate.....   Anyone who knows or thinks they know directionally where hydrocarbon markets are going past a 3 month period are epic fools.  I'll just leave it at that."

Once the Green New Deal gets a-goin', the only direction that most domestic hydrocarbon markets is gonna be goin', is ... "south".

Hopefully, I'll be proven wrong (and will enjoy being proven so).
But I call 'em as I see 'em, and that's what I see under the incoming harris-biden regime.

@Fishrrman

Don't forget ....  we are 1 out of 195 nations in the world.  There will be many including ourselves potentially who will finally reallize that there are just too many products and items made from petroleum and petroleum derivatives. That starts from plastic bottle all the way to asphalt.   OTOH, and fully uncoupled China will likely absorb our consumption too.

Point 2, even if we do commit energy sucide, much of our needs, especially in the area of petrochemical derivatives will have to be imported, while someone else makes it.   Again....No one, including you , can predict the price of oil 3 years down the road. 

[Smokin Joe]

After working in this industry for almost 40 years, I will again restate.....   Anyone who knows or thinks they know directionally where hydrocarbon markets are going past a 3 month period are epic fools.  I'll just leave it at that.

THIS!

[Smokin Joe]

I went to school with Scott who is a smart guy and built up a very successful oil company.

I interpret his words as a lament his company will not grow and flourish.

It is ridiculous for him to say shale will no longer grow, as that genie cannot be put back into the bottle once oil prices go back up.

And under falling US production and more assertive OPEC control of prices, there is no question they will rise, and rise dramatically.

Not so ridiculous if those idiots manage to halt fraccing on a widespread basis. In the Williston Basin, (Bakken/Three Forks) most of the leases are private land, so once we open production up to former levels, that could make the same difference it did when Bammy was throwing monkey wrenches into the works.

[catfish1957]

Not so ridiculous if those idiots manage to halt fraccing on a widespread basis. In the Williston Basin, (Bakken/Three Forks) most of the leases are private land, so once we open production up to former levels, that could make the same difference it did when Bammy was throwing monkey wrenches into the works.

It is just mind blowing the amount naivity in society thinking we can flip a switch turn to a society that can fully function without hydrocarbons fueling power plant, feedstocks for asphalt needed for road infrastructure, flying jets wthout jet fuel, lving without the struture plastic provides for vehicles, plastic bottles, diapers, medical equipment, devices, IV"s, etc, etc. etc.   Rubber for tires, styrofoam, food additives with hydrocarbon bases.  It goes on and on......

This country is fixated on enirowhacko stupidity.

[Hoodat]

After working in this industry for almost 40 years, I will again restate.....   Anyone who knows or thinks they know directionally where hydrocarbon markets are going past a 3 month period are epic fools.  I'll just leave it at that.

They lost me at "devastating pandemic".  The only factor that affects the shale oil industry (or any industry for that matter) is price.  And the reason oil prices are so volatile is because there is such a wide variance in production costs.

[Smokin Joe]

They lost me at "devastating pandemic".  The only factor that affects the shale oil industry (or any industry for that matter) is price.  And the reason oil prices are so volatile is because there is such a wide variance in production costs.

THere were two steps in the spring price drop.

First, the Russians and Saudis had their walkout at OPEC+.  That announcement was throughout the trades, and meant there would be a surplus. The effect was dropping WTI to about $20/barrel. Prior to that, the company I was geosteering wells for was looking at increasing CAPEX in the region I have done most of my wells in, and increasing their rig count from 9 to 11. The future was so bright, I had to wear shades.
Overnight, that increase went on hold, pending an agreement in production quotas between the Saudis and Russians, something expected to take a couple of weeks.
Then, the announcement of COVID's effects on the industry (Well, not COVID, but the reaction to it, flattening the curve, lockdowns, shuttered businesses, working from home, etc.) sent prices into a death spiral to zero, and as futures contracts matured with no storage nor demand, dove into negative territory for the first time in my lifetime as panicked investors and others realized they had to take delivery on contracts when there was no demand for that oil, and no place to put it.
Trump opened the SPR for storage, causing the market to recover back into positive territory, at the same time, adding oil to the SPR for rent for that space, effectively putting oil in the SPR for less than any president since the SPR was formed. A masterful business solution that was truly a win-win for the industry and the American people.
In short order, prices were stabilized more by reducing production domestically, an action some companies could absorb better than others. Yep there were a few bankruptcies, more in some basins than others.

But as you say, the deciding factor will be price, a result of demand, and the ability to transport that oil to markets hungry for it. Wells restarted in the Bakken have suffered far less damage than anticipated, and there is a roughly 400,000 BOPD capacity waiting in the wings for a return to business as usual. Something which may not happen as quickly as we'd like because of the damage done to the small business sector, which the oil industry will not be able to lift like it did during the boom. 

[IsailedawayfromFR]

They lost me at "devastating pandemic".  The only factor that affects the shale oil industry (or any industry for that matter) is price.  And the reason oil prices are so volatile is because there is such a wide variance in production costs.

Not really.  It is more production vs demand, and the availability of alternatives for energy sources.

Prices in the presence of a cartel like OPEC have been manipulated for the past 50 years.  Prices have gone way way up not due to production costs but due to demand in the presence of production controls.

Now for the past decade, OPEC's influence has waned as much production, particularly from the US, has been supplying that demand.

Prices fell in spite of the relatively high production costs of US shales.  Those costs continue to this day.

During 2020, the oil price dramatically fell due to demand decreases, once again not due to oil production costs.