Industry pushes back on Drill, Baby, Drill - Consumers will be disappointed with energy price promises
Wildcatter Harold Hamm Says Shale Needs $80 Oil for Costly Fields
(Bloomberg) -- Harold Hamm, the billionaire wildcatter and a major donor to President Donald Trump, has challenged a claim from the new US energy secretary that domestic oil companies could increase production even at prices as low as $50 a barrel.
Hamm’s words represent one the first signs of public push-back from the US shale industry against the Trump administration’s energy policy. Hamm, 79, was one of the president’s biggest financial backers in last year’s election.
Many in the sector have welcomed the new administration’s policy of cutting regulations and boosting domestic oil and gas production. But that support sits uneasily alongside Trump’s statements calling for significantly lower energy prices.
Energy Secretary Chris Wright told the Financial Times this week that while new supply will push down prices, oil companies will learn to innovate and bounce back.
Speaking Thursday, Hamm, 79, the co-founder and chairman of closely held shale driller Continental Resources, warned that US drillers need $80-a-barrel oil to be able to cover costs at some wells.
“There are a lot of fields that are getting to the point that’s real tough to keep that cost of supply down,” he said in a Bloomberg Television interview. “When you get down to that $50 oil that you talked about, then you’re below the point where you’re going to ‘drill, baby, drill.’”
West Texas Intermediate crude currently trades at around $67, having fallen from $80 in January amid concerns about weak Chinese demand and more supply from OPEC+.
Shale operators are slowing production growth after years of drilling up their best locations. At this week’s CERAWeek by S&P Global energy conference in Houston, executives for some of the largest US shale companies forecast US oil production will peak in the next three to five years.
Scott Sheffield, who expects US output to peak at about 14 million barrels a day, said in a Bloomberg Television interview this week that the oil price needed for publicly traded drillers to cover costs and turn a modest profit is in the range of $50 to $55 a barrel.
“That includes paying your dividend,” Sheffield said. “Nobody’s going to cut the dividend. It’s a no-no.”
Hamm said he has yet to speak with Wright, the former chief of frack-provider Liberty Energy Inc., about the costs that shale operators face and the oil prices they need to thrive.
“He and I are good friends and understand each other quite well,” Hamm said. “I look forward to that conversation.”
Hamm added that Trump’s import tariffs are a concern because of the steel pipe needed to line oil wells.
“That’s another thing that can add a great deal of cost to what we do,” he said. It’s helpful that there are some steelmakers in the US, Hamm said, “but they can’t supply it all.”
Views: 497
Replies to This Discussion
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Permalink Reply by Skip Peel - Mineral Consultant on
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Nothing that a president or a congress can do changes the price of oil or natural gas. The market rules - supply and demand, not regulations sets the price. In this case we can add geology. As the major oil basins run through their tier one acreage (best wells) and turn to tier two and three rock, the industry will need higher prices, not lower. Not even threats from a president or a congress can change that. It will be interesting to hear the excuses the administration comes up with when prices are not lower.
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Permalink Reply by Steve P -
well, I would say that governments can certainly cause the price of oil “products” to go up. I lived in CA for a number of years. The price of gasoline is 50% higher than the rest of the country due to the State’s regulations. But that’s not the point of the article or your comments.
as you say, there’s nothing that the government can do to lower crude oil prices. Governments CAN take actions that will reduce the supply, which will (eventually) have the effect of increasing prices.
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Permalink Reply by Skip Peel - Mineral Consultant
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Although California has stringent regulations on pollutants, there are a number of reasons why gasoline is more expensive west of the Rocky Mountains and some of the main ones have no connection to government.
Fewer Refineries:
The West Coast, including California, has fewer refineries compared to other regions, particularly the Gulf Coast.
Geographic Isolation:
The Rocky Mountains can make it more difficult and costly to transport fuel from the Gulf Coast refineries to the West Coast, increasing transportation costs.
Dependency on Imports:
California relies heavily on imported crude oil, making it vulnerable to global price fluctuations.
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Permalink Reply by Steve P
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CA requires a special blend for gasoline, not required anywhere else in the US. Thus, there are fewer refineriws, and no refineries built in the last 30 - 40 years, since the gasoline produced can only be sold in CA. Yes, CA relies on imported crude oil because of its unusual requirements for its finished product.
The only reason gasoline from other parts of the country are not shipped by pipeline to CA is because those products don’t meet CA’s very specific requirements.
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Permalink Reply by Skip Peel - Mineral Consultant
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California has a history of leading the country when it comes to fossil fuel related pollutants. Los Angeles smog made that a priority decades ago. I find all the efforts and regulations to reduce that pollution a rational response. Californians had the right response as conservative politicians did once upon a time to acid rain the northeast.
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Permalink Reply by Hale Yayuh
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"Drill baby drill" is the dumbest thing ever. The public has been had. The oil biz doesn't work that way. Experts should tell the truth -- it is b.s. -- and consumers shouldn't fall for it. The last thing we need now is rampant drilling. If the industry goes on a drilling spree, that means the Permian ramps up further, which means not only more oil but more natural gas. Which pushes the price down, the opposite of what we need. I can only hope to see $5+ natural gas. Sooner than later!
More people need to call out the crap.
My opinion is that the price of gasoline is a bargain these days. And would be even higher than it is. We don't want gasoline of $4+ but the average price of regular gasoline in Texas at this time is $2.76. Think about inflation over the past decades. This gasoline price is a steal and doesn't seem reflective of what it 'should' be.
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Permalink Reply by Skip Peel - Mineral Consultant
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Agreed all around, Hale. What burns my butt are all the articles from energy reporters and pundits praising Drill, Baby, Drill and Energy Dominance. They know it is bs big time but they bow down to worshiping Trump and seeking to avoid his wrath. It is hard for the truth to get through to the public when Trump is promoted by those that know better. All those articles should be highlighting the voices of industry heavy weights saying they have no intention to drill and produce more and that they are focused on increasing the price of oil and natural gas. My greatest fear for the future of my country is now uninformed, misinformed and apathetic voters.
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Permalink Reply by Jesse Joyner
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Skip:
Did you see that Mr. T had discussions with the oil companies operating in Alaska? Our president is promoting a humongous NG pipeline from the North Slope and says that he wants to drop NG prices for the Lower 48. And like Hale Yayuh stated above, more NG production coming online and flooding the market will drive NG prices down in Louisiana. It's a no-brainer. The future's market reacts quickly to weather events/forecasts, but the complexity/length of pipeline building in Alaska is not a datapoint variable per the forwarding facing uncertainty of such.
That stated, if some savvy insiders want to weigh in with their prognostications on the AK NG pipe completion date and LNG shipping to the Lower 48, please don't hesitate to post it here.
As always, good work Skip. Your analysis is sharp and honest and pulls no punches. The truth is the truth.
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Permalink Reply by Skip Peel - Mineral Consultant
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The Alaska LNG project has a more competitive position geographically to some major LNG importing markets like Japan, Korea and maybe China. I'm unsure of where the natural gas would be sourced from but I suspect Canada. I've seen nothing on the cost inputs. The major threat to the price of Haynesville gas is Permian "associated gas". As more pipeline takeaway capacity comes on line connecting to the Gulf Coast and Permian wells get more gassy, the Permian majors will look to gas as more of a profit center than they have in the past. Tier one Permian well locations are shrinking rapidly. Those wells become more gassy as they age and the Tier Two and Three locations have higher GORs than the Tier One wells. Super major oil focused companies already see the writing on the wall. Their oil future is short but their natural gas future is much longer. Although it is difficult to measure at this point, if FlyWheel gets its D&C cost to an economic level that will be more natural gas coming to the Gulf Coast market from Arkansas.
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Yes, Skip, as Jesse said in this thread -- the truth is the truth. And I, for one, am not remaining silent anymore. I'm tired of his b.s., he can't tell the truth and tomorrow, the lie will be different but it will be a lie, and I am calling him on it. I have never in my life seen the amount of butt-kissing as we have endured over the past several years. A very large percentage of the lawmakers in Washington are lawyers, they are not dumb people, far from it. And the almighty dollar (and power) rules. They know he's full of it. Our country has never been in more peril. I'm old, I don't have that many years left. From a selfish standpoint, I'd sure love to enjoy $5+ natural gas! It seems laughable that I 'only' mention $5! Five years ago, ten years ago, 15 years ago... I never, in my wildest dreams, thought I'd be wishing for a significant jump in prices to 'only' $5!
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Hey, Hale Yayuh.
You and Skip nailed it. Spot-on. Solid analysis/opinion. I agree.
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Permalink Reply by Skip Peel - Mineral Consultant
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Taiwan agrees to invest in major US LNG project
Taiwan’s CPC Corporation will also broker an offtake deal with Trump-supported Alaska LNG development
Alaska LNG has struck a preliminary deal with Taiwan’s CPC Corporation for the state-owned company to invest in the US$44 billion US liquefied natural gas project, according to officials from one of the project’s developers.
Officials from Alaska and Taiwan signed a letter of intent Thursday for CPC to negotiate an LNG offtake deal in addition to the investment, the Alaska Gasline Development Corporation (AGDC) said.
The letter was signed in Taipei by AGDC general manager Frank Richards and officials from CPC, according to a news release from Taiwan’s Ministry of Economic Affairs. Also in attendance were Alaska Governor Mike Dunleavy and officials from Glenfarne, which is co-developing the project with AGDC.
Officials said the partnership will help bolster Taiwan’s energy security while also promoting Taiwan’s cooperation with the US.
Taiwan President Lai Ching-te also threw his support behind the deal.
“Alaska is a source of high-quality natural gas. Its relatively short distance from Taiwan facilitates transportation. We are very interested in buying Alaskan natural gas because it can meet our needs and ensure our energy security,” he said in a video posted on social media by Alaska LNG.
Officials from Alaska and Glenfarne are visiting Asia this week to drum up investments for Alaska LNG, which calls for an 807-mile (1290-kilometre) natural gas pipeline from Alaska’s North Slope to a 20 million tonnes per annum liquefaction facility in Nikiski, near Anchorage.
Dunleavy has said Japan and South Korea have also expressed interest in the project, which already has federal approvals in place and has the backing of US President Donald Trump's administration. Japan has already agreed to import LNG from Alaska.
In 2023, Alaska produced 367.726 billion cubic feet of marketed natural gas, with the majority of this gas coming from the Kenai Peninsula and the North Slope.
In 2023, Louisiana produced 4.30 trillion cubic feet (Tcf) of dry natural gas, which represents about 11.4% of the total U.S. dry gas production, ranking it as the third-highest producing state.
So 367.726 Bcf sounds like a lot of gas but it isn't. About one twelfth of Louisiana production and a third of the Haynesville Shale isn't in Louisiana.
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