Shale oil producers, currently slicing their budgets, shouldn’t focus too much the current, $30 a barrel oil environment, Hess Corp. CEO John Hess warned.
“We’re in a long-term business, but everyone is thinking short term,” Hess said Monday at this week’s IHS Energy CERAWeek conference in downtown Houston.
New York-based Hess cuts its capital budget by 40 percent in January, and it is only operating two drilling rigs — down from 14 in 2014. But he’s resisting temptations not to mothball every rig because it is critical to maintain some core operations to keep cash flowing and to secure top employees long term.
“We’ve been disproportionately hurt in the U.S.,” Hess said. “Our activity level is bare minimum.”
“Very few things make sense at $30. They barely made sense at $50,” Hess added. “It’s better to leave the oil in the ground.”
However, he resisted the argument that the U.S. is the new swing oil producer. He urged Saudi Arabia to retake its past role as the swing state.
“I think the only swing producer . . . is Saudi Arabia,” Hess said, noting that the Saudi oil minister is speaking Tuesday at the conference. “I wish they’d use it now.”
He said U.S. shale can only operate as the “short-cycle producer” because there’s almost a two-year lag. Shale certainly cannot operate like an on-and-off switch, he said.
“Shale is such a capital intensive investment,” Hess said. “Once you’re in, you have to keep putting more money in.”
Hess predicted shale production would hold flat in the $50-$6o a barrel range, and grow above $60.
“Once you get the visibility of $50 or $60, shale will play a component,” Hess said.
Long term, global development and population growth will require about 10 million more barrels of oil equivalent a day, Hess said. About 4 million barrels will come from shale, he said, and the rest will come from a combination of deep water, conventional production and Mexico. More shale oil and gas will come from Argentina as well, he said.
“Just to get the deep water going, I think you need a price closer to $70 (oil),” Hess said.