US oil chiefs have offered President Donald Trump their unequivocal backing for restarting the conversation around energy policy and climate change in their favour, but his push for lower oil prices is creating misgivings.
Energy secretary Chris Wright told reporters at the CERAWeek by S&P Global conference in Houston last week that the administration's push for lower oil prices has no specific target level, but White House officials, including trade adviser Peter Navarro, have cited $50/bl as a preferred level that would help to bring down inflation. A decline to that level would have far-reaching repercussions for the shale patch and lead to lower production in the top-performing Permian basin, according to industry veteran Scott Sheffield.
"The cash breakeven for the majors and independents is $50-55/bl including dividends," said Sheffield, one of the pioneers of the shale revolution in the Permian basin that turned the US into the world's biggest producer. "So at $50/bl oil, there's no free cash flow, there's no growth." Wright attempted to square the circle between Trump's call for lower crude prices and higher crude production at the same time, arguing that both goals could be achieved by removing barriers and developing more infrastructure under a strategy of "Build, baby, build".
Executives from the US and European majors talked up prospects in the offshore Gulf of Mexico, which is enjoying a resurgence in interest as pioneering technology opens up previously inaccessible resources. But the industry needs to work with the administration to explain the unintended consequences of its tariff policies, pipe manufacturer Tenaris said, as they affect equipment used for deepwater development.
In the shale, with most public operators pledging to keep spending down this year and growth to a minimum, few have thus far shown any appetite to open the floodgates. US major Chevron might forecast double-digit output growth from its Permian operations this year, but it is slowing its spending. "Chasing growth for growth's sake has not proven to be particularly successful for our industry," chief executive Mike Wirth said. "And so we're moving towards a plateau that will open up the free cash flow generation and then sustain that for a long period of time."
Tech flows
Consolidation has helped to improve financial performance and efficiency of the larger operators now dominating the Permian, giving them the ability to drive technology gains and improve recovery rates, according to ExxonMobil's new head of oil and gas production, Dan Ammann. "When you have a position like ours — with continuous acreage — it allows you to do things that others are unable to do, like very long laterals," he told the conference. "Today we are recovering 6-8pc of the total resource, so the ability to unlock increased recovery of that through technology is a great way to grow production."
Occidental Petroleum's chief executive, Vicki Hollub, is advocating the use of enhanced oil recovery techniques with CO2 pulled in by direct air capture facilities — which remove CO2 from the atmosphere — like the projects Occidental is developing. Pilot tests in the Midland basin suggest the company could double recovery rates using this technique for shale, Hollub said.
And even though growth in shale output looks set to reach a plateau by the end of the decade, industry leaders voiced optimism that its decline will be slow and future drilling breakthroughs, possibly driven by artificial intelligence, could yet prolong its lifespan. "Never bet against this industry in terms of technology," ConocoPhillips' chief executive, Ryan Lance, warned. "It will always figure out a way to get more resource out of the rock."
