OPEC meets with U.S. shale producers in rare show of detente

By Javier Blas on 3/7/2017

HOUSTON (Bloomberg) -- For the last two years, they’ve been locked in a battle for supremacy of the oil market. But for a couple of hours in Houston over dinner on Sunday, the head of OPEC and leaders of some of America’s top shale producers shared a table for a rare off-the-record chat about the future of oil.

Mohammed Barkindo, secretary-general of the OPEC, dined with 20 or so U.S. shale executives including Scott Sheffield of Pioneer Natural Resources, John Hess of Hess Corp., Robert Lawler of Chesapeake Energy and Tim Leach of Concho Resources, according to people who attended the event and asked not to be named because it was private.

Mark Papa, the oilman who helped create the U.S. shale industry more than a decade ago, also attended the dinner at a restaurant in downtown Houston on the eve of the annual CERAWeek conference. Halliburton President Jeff Miller was among representatives of the oil-service sector.

The sides agreed in principle that the market should be better balanced and lower inventories would be beneficial to everyone, according to the people. But while the shale producers signaled they weren’t ready to give up on the growth they see ahead, OPEC indicated it wants higher prices, even if it means enriching the shale companies, they said.

Spokespeople for Pioneer, Chesapeake, Hess and Concho Resources weren’t immediately available to comment on the dinner when reached outside of regular business hours. Mark Papa couldn’t be reached and Halliburton declined to comment.

New Competition

For OPEC, U.S. shale producers are a new source of competition, able to respond faster to price signals than traditional suppliers. Since May they have almost doubled the number of active oil-drilling rigs in the country, helping lift the nation’s production above 9 MMbpd for the first time in almost a year.

The IEA forecast they’ll ramp up output by 1.4 MMbpd from now until 2022 even if oil prices remain at current levels below $60/bbl.

“We are witnessing the start of a second wave of U.S. supply growth," Fatih Birol, the IEA’s executive director, told Bloomberg News in an interview in Houston on Monday.

For shale companies, OPEC can determine whether they enjoy high enough oil prices to make money, as is the case today, or they face losses and even bankruptcy, as many did in 2015 and early 2016 when WTI, fell to a 12-year low of less than $30/bbl.

Daniel Yergin, the oil historian-cum-consultant who hosts CERAWeek, has described the relationship between OPEC and shale as "mutual coexistence", with both sides learning to live with prices that are lower than they would like.

“They are asking questions, the same questions we are asking,” Barkindo told reporters on Sunday night, arriving back to his hotel. “We are all learning, because this is new in the world of oil.

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