Profits Possible at Low Oil Prices But Tough Changes Required

Abstract

Conference Review - HIS Energy CERAWeek in Houston, Texas, April 20-24, 2015 Low oil prices look like something the industry needs to get used to. “This will be with us for a while,” said Rex Tillerson, chairman and chief executive officer (CEO) of ExxonMobil. While prices will swing up at times, he predicted a “difficult price environment for the next couple of years.” The message was repeated over and over by the speakers at the annual IHS CERAWeek conference in Houston, which attracts executives from around the globe. “You have to prepare for USD 60 and less,” said Stephen Chazen, president and CEO of Occidental Petroleum. To adapt to the new environment, “we cut costs by a third. Some projects are going away.” Companies will need to concentrate on reducing their breakeven costs permanently or “you will have tough times,” said Patrick Pouyanné, CEO and president of the executive committee for Total. For many, tough times are already here, with announced layoffs from the global oil and gas industry surpassing 100,000 by April, according to The Wall Street Journal. The number of drilling rigs working in North America is less than half of what it was at the peak last year, but that does not necessarily mean oil production will decline. Continued low prices led natural gas producers to sharply increase their productivity, allowing them to produce far more with a fraction of the rigs once needed. “A significant decline in rig activity did not diminish the growth in capacity” in natural gas, Tillerson said. “Will we see the same phenomenon in tight oil? I do not know, but that is why I believe this is a very resilient industry. I think people will be surprised.” So far, the measures of drilling efficiency and well productivity in the US oil plays have improved at a rate that followed the path previously traveled by gas producers, he said.