Industry spending binge may 'kill' oil market, shale billionaire Hamm warns
HOUSTON (Bloomberg) -- Harold Hamm, the billionaire shale oilman, said the U.S. industry could "kill" the oil market if it embarks into another spending binge, a rare warning in a business focused on fast growth to compete with OPEC.
The statement, at an energy conference in Houston on Wednesday, comes as top shale companies announce large increases in spending for this year, and the U.S. government says domestic oil output next year will surpass the record high set in 1970. OPEC ministers have said they are keeping a close watch on shale production to decide in late May whether to extend their oil-supply cuts into the second half of the year.
Oil prices plunged 5% on Wednesday to their lowest level this year, falling just above $50/bbl, on investor concerns about unbridled growth in America’s shale basins swelling U.S. inventories.
U.S. production "could go pretty high," Hamm said at the CERAWeek by IHS Markit conference in Houston, one of the largest gatherings of oil executives in the world. "But it’s going to have to be done in a measured way, or else we kill the market."
Hamm runs Continental Resources Inc., one of the biggest shale producers in the country with drilling operations that run from the Bakken in North Dakota to Oklahoma. He also was an early supporter of Donald Trump’s candidacy, and remains an informal adviser to the president on energy.
Spending announcements
After oil prices doubled over the past year, U.S. shale drillers have announced big increases in spending for 2017. Anadarko Petroleum Corp. this week said it planned to invest 70% more this year than in 2016. Last month, EOG Resources Inc., another big shale producer, said it will spend 44% more this year than last. Exxon Mobil Corp. plans to spend a third of its drilling budget this year on shale.
Shale producers are staging the biggest surge in drilling since 2012, with the number of oil rigs rising to more than 600 this month, nearly double the level of June. They are rushing to spend again after the Organization of Petroleum Exporting Countries and Russia agreed last year to cut its supplies, boosting oil above $50/bbl after a two-year price rout.
The drilling boom has been led by the Permian basin, which extends from western Texas and south-east New Mexico, and the Scoop and Stack plays in Oklahoma.
The Energy Information Administration this week said U.S. production will rise to 10 MMbpd by the end of next year, more than 10% higher than now. If so, shale drillers will capture market share from OPEC, largely filling the increase in global oil demand.
"We are witnessing the start of a second wave of U.S. supply growth," Fatih Birol, the head of the International Energy Agency, told Bloomberg in an interview on the sidelines of the Houston conference.
Saudi Arabia Energy Minister Khalid Al-Falih earlier this week warned CERAWeek attendees that what he called the green shoots emerging in the U.S. oil industry were perhaps growing "too fast." ConocoPhillips CEO Ryan Lance quipped afterward that the green shoots looked more like "trees" to him.
Al-Falih, in a clear message to the U.S. industry, said it would be "wishful thinking" to expect that Saudi Arabia and OPEC "will underwrite the investments of others at our own expense" through production cuts.
