As the downturn in oil prices continues to decimate its ranks, the U.S. shale industry is likely to come back more cautious than it was before, former EOG Resources CEO Mark Papa said Tuesday.
“The next six to 12 months is going to be a decimation for that industry – bodies all over the place,” he said at the IHS CERAWeek conference. “From those ashes you’re going to see the companies that survive, are going to come out of it a lot more conservative as they go forward. They’re not going to stretch their balance sheets so much and make acquisitions based on false premises.”
Papa, now a partner with the private equity firm Riverstone Holdings, described the U.S. shale drilling industry as operating in a “run and gun atmosphere” over the last five years, as companies were lent vast sums to buy assets at a premium.
But oil prices have fallen by 70 percent since the summer of 2014 and are now trading around $30 a barrel.
Still, if forecasts that world demand will grow 1 million barrels a day annually for the next five years hold true, Papa said he was bullish on the U.S. sector.
“Where is the supply going to come from, particularly when you see capital spending on the mega projects has stopped cold,” he said. “I can foresee a case where the biggest supplier in 2020 is the U.S. shale producers, because the world needs that incremental production.”
A deal among world leaders in Paris in December to cut global carbon emissions has raised the specter of a pullback in fossil fuel production. Some, like former BP CEO John Browne, who joined Papa onstage at CERA Tuesday, are advocating the oil sector begin to work more closely with governments to enable that transition.
But Papa, echoing the sentiment of many U.S. oil and gas executives, questioned the feasibility of moving away from oil in a substantive way.
Reducing carbon emissions “is vital. But I’d come at it from a little different angle. The concept we’re moving away from the hydrocarbon age, I think, its a bit Pollyanna-ish,” he said.