The energy sector won’t repeat last year’s mistake of rapidly boosting production the next time the price of oil hits $60 a barrel, said the chairman and CEO of EOG Resources.
When the price of the benchmark for U.S. oil seemingly stabilized near $60 a barrel last May, the number of rigs drilling for oil increased. But the price of oil cratered in July, triggering a free fall that may still not have bottomed out. Oil traded for less than $28 a barrel on Wednesday on the New York Mercantile Exchange.
“We’re not going to be ramping up production the first time oil hits $60 a barrel,” EOG CEO Bill Thomas said Wednesday at the NAPE Summit 2016 in Houston.
The U.S. shale oil industry doesn’t want to drive down the price by oil by overreacting, he said. “We’re not going to try that again.”
That’s the case even though a lot of EOG’s wells in the Eagle Ford and Permian Basin are profitable near $45 a barrel, he said. Last year, EOG had a “zero” growth goal after previously surging about 40 percent a year.
However, Thomas emphasized the future of U.S. shale oil is bright as early as 2017 with global demand still increasing and U.S. companies constantly advancing technologies and efficiencies.
“U.S. horizontal oil is going to be critical to grow to supply global demand growth,” he said, arguing that most of the world’s future oil supply will come from the Middle East and the U.S.
Houston-based EOG touts itself as the the largest producer of oil in the onshore lower 48 states.
“We don’t plan on giving up that lead. We have big plans going forward,” Thomas said.
“There’s no better time to pick up acreage when the industry is at a low point,” he added.
While he admitted a “bit of disappointment” that overall U.S. oil production didn’t decline more last year, Thomas said he expects sharper cutbacks this year with most producers cutting their capital expenditures at least 40 percent. “U.S. production is really going to fall quite substantially,” he said.
It’s a lot harder to get oil out of shale rock formations than it is to extract natural gas, Thomas said, so the nation isn’t going to see a seemingly endless over-supply of oil that keeps prices deflated.
“I think the future of the business is obviously going to be a lot more discriminatory,” he said, and the companies with the best assets will thrive. As such, EOG is positioned with wells that are twice as productive as the industry average, he said.
While Thomas isn’t predicting $70 oil, he expects the eventual rebound.
“Nobody believes that current prices are sustainable,” he said. “Everyone is stressed. I don’t care who you are. Even the Saudis are stressed.”
The problem for now is the U.S. shale industry doesn’t respond quickly enough to serve as the world’s swing producer, he said, and Saudi Arabia is refusing to take that role. As such, there is no so-called swing producer to keep supply and demand in balance and the market is depressed. American oilfield services companies will need time to hire employees after massive layoffs, he said.
At NAPE, Texas Railroad Commissioner Christi Craddick said Saudi Arabia is “not very happy” with Texas because so much of the shale oil boom has occurred in Texas’s Eagle Ford and Permian Basin.
Despite the oil downturn, the energy sector is a huge part of Texas’ economy. She said the energy sector represents about 37 percent of the state economy, although that’s down from 41 percent 18 months ago.
“We’ve seen these ups and downs, so nobody panic,” Craddick said.