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Page added on January 4, 2017
Oil at $65 Per Barrel? Energy Pros Hopeful In 2017
With OPEC production plans in place and new leadership advancing to the White House, the oil and gas industry left 2016 less weary than it started the year, and more hopeful for 2017.
When Rigzone talked with a panel of experts at the end of 2015, the downturn’s end was nowhere in sight. Oil prices continued their descent and bankruptcy hovered like a specter over dozens of U.S. oil and gas companies.
Fast-forward a year and while they remain cautious, optimism characterizes most expert forecasts. Costs are down and investment is heating up. We revisited our panel – Ethan Bellamy, senior analyst at R.W. Baird & Co.; Deborah Byers, chief of EY’s U.S. energy practice; John England, vice chairman of Deloitte; Andrew Slaughter, executive director, Deloitte Center for Energy Solutions; Stephen Trauber, vice chairman and global head of energy at Citi; and James West, senior managing director for oil services, equipment and drilling at Evercore ISI – for their insights into how oil and gas will fare in the year ahead.
Rigzone: What will be the hottest play for investing in 2017? Will the Permian continue to dominate the field?
Bellamy: Everyone loves the Permian, but we think 2017 will see a renaissance in lesser-loved areas as rig productivity changes the profitability equation and as assets change hands to new, better-capitalized owners. Keep your eye on the Haynesville, for example, that was once written off as dead. Watch for export markets and asset turnover to re-ignite the Eagle Ford.
Byers: 2017 is going to be a bit of a crazy year because of the entire changing landscape on the regulatory front as well as with a new administration coming in that people did not expect to be coming in. I think there could be a fairly significant change.
I also think the skeptics around whether OPEC would act caused people to be fairly pessimistic about the outlook for 2017 for oil and gas. I think those who made some bets in the Permian and other bets in 2016 on a bit of turnaround and a rally are going to do well in 2017.
England: The Permian is probably going to stay at the top of the list. If you look at the transactions that have happened around acreage in the Permian, it’s pretty remarkable. With that much spending on acreage, you can be certain that there’s going to be a lot of activity there.
There’s also been a lot of excitement around the SCOOP and STAAK plays, so I think we’ll continue to see investment there.
Rigzone: Where in the ‘lower for longer’ cycle will the industry be at the beginning of the year?
Byers: The industry has turned the corner in accepting that this may be the structural change. We look at it as, a scarce resource is now pretty abundant, and so your planning and the way you’re going to think about it changes. Maybe lower for longer is not the right way to look at it. It’s just that we’ve now balanced supply and demand and what you’re seeing is the inherent cost structure being reflected in the price of oil.
England: I’m optimistic that the industry bottomed out in February 2016, when we hit $26 per barrel. We’re hoping that was the low point. I think the fundamentals point toward tightening supply and demand in 2017. Certainly if the OPEC decision is enacted, it will accelerate that. All of those point in the right direction for the industry. Given that, I think we’re at least headed toward a slow recovery in terms of pricing. So yes, I’d like to believe we’re through the worst of this.
Slaughter: It’s a cliché, but as they say, the cure for low oil prices is low oil prices. It’s a cyclical business, we’re at the bottom of the cycle and there’s only one way to go.
Trauber: I think for sure we’ve seen the bottom, and the signal of the bottom is when you see OPEC start to take some action. If you look back over the last five decades, there’s been a cycle on average every seven to nine years … but every one of those cycles was turned by OPEC action. We’ve now had OPEC action. We’ve had OPEC signal that they want and need higher oil prices. In fact, we’ve seen some non-OPEC nations signal the same thing. We’ve seen that ‘lower for longer’ has held out – and it was lower for longer for the last five cycles – but I do think we’re going to be in a period of a little bit higher oil prices.
Rigzone: What do you expect for oil prices during the next 12 months?
Bellamy: Donald Trump’s election is bearish for U.S. oil prices, because supply will be easier to come by. I’d be surprised if WTI crude oil averaged more than $55 per barrel in 2016, particularly because E&Ps (exploration and production companies) will be hedging their butts off at that level. If we actually get to production and supply equilibrium in 2017, it’s more likely to show up as a widening Brent-WTI spread, which we’ve already seen expand slightly after the OPEC announcement. So if you’re looking for a canary in the coal mine for a healthy industry long term, focus on the domestic vs. international arbitrage in crude.
Byers: We’re seeing from the broker consensus a $50 to $60 per barrel band. The price jumps a couple dollars every time someone says something, and I think there will be a lot of volatility between that $50 to $60 band. But you can invest on that because you can transact.
Trauber: I think OPEC, led by Saudi, wants to keep oil price in a certain price range. My view is that range is $55 to $65. OPEC has not been able to deter substantially the U.S. unconventional. That has shown to be extraordinarily resilient. Through the down cycle, they were able to take out a substantial amount of cost, such that the breakeven for unconventionals is clearly a lot lower. It will move up, as oil moves up because service costs have to go up so the breakeven costs will move up, but there will be a lot of production onshore U.S. where they can stymie and deter production is in offshore projects. You’ve got to have belief that oil prices are going to be $65 and above to invest that kind of money. If they can maintain oil prices in the $55 to $65 range, then you may not deter onshore production, but you’re going to deter offshore production. And that’s good for Saudi; that’s good for OPEC.
West: We expect a gradual move higher for oil prices as global inventories shrink. We envision $60 by year end.
Rigzone: How will the OPEC/non-OPEC production cut announcements affect the industry?
Bellamy: OPEC is the Saudis. And the Saudis are Aramco. We think that the Saudis will jawbone, cajole and actually cut production in the short term in order to juice the crude market into a better pricing of the Aramco IPO. After that monetization event, we think that their short term incentives to cede market share to other producers will wane materially. But in the background, their overall strategy of squeezing competitors has failed miserably in North America. We just keep getting more and more efficient. We’ve got a brutally efficient Darwinian system here with which national oil companies simply can’t compete. They cannot put the genie of U.S. onshore efficiency back into the bottle.
England: I do think there’s some real motivation from the big players to get these cuts and some price stability. They’ve really suffered over the last two and a half years; their output has gone up and their revenue has gone down dramatically. At some point, it just makes sense to try to get some better pricing. Given the state of a number of these countries in terms of a need for that revenue from a fiscal perspective, I think there’s a lot of pressure to get prices up.
Slaughter: If you look at previous OPEC cut cycles, compliance is usually around 60 to 70 percent, and then that degrades a little bit over time. But this time, Saudi Arabia is very motivated just because of (Saudi Aramco’s IPO) what’s coming up in 2018 is a big driver. Even since the meeting, Saudi has been making noises about making cuts further than announced. You expect Saudi Arabia to do most of the heavy lifting, but they’re trying to put some commitment around this, which is real. Some of the other countries that have pitched in – their so-called cuts are, in fact, the natural declines in their fields. So that will be delivered. I expect a fairly good level of compliance. Even if it’s not 100 percent, it’s still good for the inventory drawdown the market needs.
Rigzone: Any executives you expect to stand-out as new players this year?
Trauber: I think Bryan Sheffield at Parsley Energy is doing a really good job of accumulating acreage. His father (Scott Sheffield, retired CEO at Pioneer Natural Resources) is a legend. (Bryan) has made some acquisitions, and he’s a real player in the Permian. He’s obviously got a good heritage. I think he’s one of those up-and-coming stars as a CEO.
Hal Schappell at Alta Mesa is getting ready to go public. When it does and the market sees what he’s doing in the STAAK, the returns and growth he’s generating, people will become more aware and he will be on the radar for sure.
Not necessarily an up-and-comer, but someone who is resurging is Lee Boothby at Newfield. He’s remade a company, if you go back to two years ago, stock was languishing and the values down. He’s been here a while, but you can say his star is shining brightly today.
West: A new CEO at Weatherford will be putting his mark on the company. (CEO Bernard Duroc-Danner left the company in November; CFO Krishna Shivram is the interim CEO.)
22 Comments on "Oil at $65 Per Barrel? Energy Pros Hopeful In 2017"
dave thompson on Wed, 4th Jan 2017 4:11 pm
Looks and sounds like a bunch of rich white guys (mostly) telling us how smart they are.
Sissyfuss on Wed, 4th Jan 2017 5:02 pm
They won’t stay rich unless they can sucker you into investing with them.
makati1 on Wed, 4th Jan 2017 6:36 pm
Sissy, lucky for them there are a lot of suckers who still have money to waste and no brains to think.
rockman on Wed, 4th Jan 2017 8:12 pm
What would have been cool is if they had found quotes from these “experts” back during height of the shale and see how they panned out.
joe on Thu, 5th Jan 2017 3:54 am
We keep hearing noises about this mysterious ‘efficiency’ of tight oil companies. This seems to me to be nothing more than capital gain made by those who survived the price downturn, just like a man who buys a house at the bottom of a market then prices slowly go up. With loads of idle trucks, rigs, equipment diminution of land and leases,and of course desperate workers, if course costs reduce marginal returns have increased as it acts inversely to supply (or tight oil output ). That wont last if oil prices spike and investment returns, but Saudi wont allow that, I think, if they have any say.
makati1 on Thu, 5th Jan 2017 6:15 am
Joe, Russia has control of the oil market today, not the Saudis. You are living in the past. Oil prices are going to go down, not up. The pain in the oily industry is just beginning. Russia has fields it hasn’t even tapped yet. The Saudi fields are more water than oil.
Davy on Thu, 5th Jan 2017 6:16 am
“Mexico Panics As Trump’s Leverage “Far Greater Than What Mexican Elites Thought”
http://www.zerohedge.com/news/2017-01-04/mexico-panics-trumps-leverage-far-greater-what-mexican-elites-thought
“All of which has caused some level of panic within the Mexican political and media spheres from the elites who are slowly realizing that when Trump says he wants to disrupt the status quo by renegotiating NAFTA and building a border wall, “he means it”….as completely shocking as it may be that a politcian might actually mean what he says.”
Davy on Thu, 5th Jan 2017 6:52 am
I am firmly behind climate change science. I am suspect of the climate change movement as I am the techno optimist green washing. I am firmly behind solar and other alternative energies and energy strategies. My issues are destiny, scale, timing, and cost/benefit. I feel it is doubtful we can arrest climate change. It may be possible we can diminish the effects. What are the cost/benefits of these actions? It may be the case we have already tripped runaway climate change and the natural contributions will dwarf human contributions or we may not be able to arrest climate change but we may have time to prevent runaway climate change. I have a problem with descriptions of climate change effects. These reports are almost always negative. This is an agenda with bias. We can argue this is one of those “good” “means justify the ends”. Yet, for big boys and girls who can handle the truth we should be talking about this realistically, honestly, and objectively. We can leave the bias to the kids. What good results will come from climate change? If it is here to stay with no avoiding it what benefits are there?
Should we quit taking actions to try to end climate change when it is a foregone conclusion? Should we be instead taking actions to adapt to a dangerous destabilized world as the focus? This is similar but not the same as policies trying to arresting climate change. We should put more effort into mitigating its effects in a cost benefit driven way. Does human life matter? Extreme climate change action will kill people. If you disrupt economic activity enough people are going to die. Where is the best mix of policy in regards to killing people? This is an “indirect” killing but killing nonetheless. Leaving fossil fuels completely may not be the best option so quit acting like it is the only option. Techno optimist are the worst with their preaching of an alternative world when the evidence is not supportive. There is currently no evidence an energy transition is possible on multiple levels. What kind of resulting civilization, the scale of the challenges, and the time frame are not proven yet for an alternative energy world but that is what is being preached. These are big boys and girls issues that should be talk about by those who can handle the truth. I am saying this because the lies and distortions from the green washing is a “good” ends justify the means. It works with the intellectually weak to motivate and affect good policy. Climate change and depletion or not alternative energy is vital and good but don’t overdo it. Too much of a good thing sometimes is deadly.
Another issue is “self-organization” of globalism. There are aspects of globalism with markets and political movements that cannot be altered. They have momentum and direction that is like steering a huge ship. Theoretically what is a “best” policy? I say theoretically because best is not possible for status quo because it would involve painful steps that will not be taken in a world of competitive cooperation. There are too many tradeoffs to this kind of arrangement and too many winners and losers possible depending on a relative direction. There are too many chiefs and not a proper situation of a big chief moving everyone. What the world needs now is true leadership but the kind we need is not the kind people want. We need a dictator and he must be benevolent. That is almost impossible now maybe at a time like during the Roman Empire. Corruption and overpopulation have made this potential impossible.
We are in so many traps that one wonders if any action matters or is any better than any others. We have the issue of luck and we have the issue of unknowns with consequences and unintended consequences. In a way it doesn’t matter but what does always matter is the truth. When big boys and girls are talking we should talk about the truth regardless of the personal good or bad. This points directly at agendas or the intellectually lazy and weak. Greenwashing is not the truth. Climate hype is not the truth. Both are important issues that have good results. Yet, should we also consider winners and losers in trying to leave fossil fuels. When only the rich can afford alternative energy strategies then how fair is that. We should consider the truth about an alternative buildout. Consider the situation of closing a coal plant and building a solar farm. At some point is more energy and pollution generated making that transition. Should some fossil fuels not be mothballed because of relative economics? If you have already sunk huge amounts of resources into something then want to mothball it that is a sunk cost. Top that off with a huge investment that has a cost in pollution from manufacture and investment.
Where we can make the biggest impact is where humans are a failure and that is attitudes and lifestyles. People want their cake and eat it. They don’t want to make sacrifices they want others to make sacrifices. They want to point fingers at other with blame and complain. No one wants to do the right thing if others can be made to do it and suffer the consequences. If we could change attitudes and lifestyles worldwide to do relative sacrifice of less consumption and more personal effort we could achieve remarkable things. So really this is not about technology and science although they are part of it. This is really about humans and our social narrative of meaning. It is wisdom and who should be in charge of dispensing wisdom.
Since it is likely the case too much delocalization has occurred we have to accept that we are all in this together at some levels and behave accordingly. If we could somehow choose mutual benefit over self-benefit that adds up to better if all participate. It gets back to local, can we at our local level affect higher level wisdom that the global can’t? This is where real progress is possible but only to a point because of delocalization and overpopulation. This will only work in those local who have potential. Almost all large urban areas are wastelands of progress. They are “no-go” areas for someone who is seeking a future. In these areas it should be about the mental and physical construction of hospices of the possibility of pain and death. Some people unfortunately have no future because of destiny. Finally if all is lost for everyone some of us should construct monasteries of truth and wisdom for the future who may survive a coming bottleneck. Why, just because it is a higher human value.
JuanP on Thu, 5th Jan 2017 8:23 am
Saudis expect 46% increase in oil revenue in 2017, https://www.rt.com/business/372607-saudi-arabia-oil-revenues-2017/
Dredd on Thu, 5th Jan 2017 8:40 am
Oil is no good at any price when the laws are correct and obeyed (Doing The Alt-Right Thing – Mithraism – 4).
Revi on Thu, 5th Jan 2017 9:29 am
We’ll see. The Etp model says a high of around $56, so we’ll see if that will hold…
GregT on Thu, 5th Jan 2017 11:00 am
@Davy,
“Can you think of any problem in any area of human endeavor on any scale, from microscopic to global, whose long-term solution is in any demonstrable way aided, assisted, or advanced by further increases in population, locally, nationally, or globally?”
Albert Bartlett (RIP)
penury on Thu, 5th Jan 2017 11:34 am
The majority of “oil” sells in dollars. As the cost of dollars increases relative to other currencies, prices paid for dollars increase. As inflation continues and CBs continue3 to attempt to increase inflation prices will rise. Cost of “oil” might increase at retail but will that increase cover the cost differential in say dollars to Pisos? And there are a couple of countries selling “oil” in currencies other than petro dollars which will distort the market to a degree. So oil can go to 60 dollars a barrel, but what will that do to selling price in say Japan?
BobInget on Thu, 5th Jan 2017 11:42 am
PEMEX raised retail prices over 20% …
Still, there are shortages….
What gives? Mexico is clearly exporting to get cash, ignoring local markets.
(Mexico has been importing more NG and refined products then it exports, IOW’s Mexico is negative crude)
http://www.reuters.com/article/us-mexico-gasoline-idUSKBN14P0HP?il=0
“unrest” is that word one uses just before a fully
fledged revolt. Then, citizen protesters are called
‘terrorists’.
The upshot here, elsewhere, will be Mexico exporting to the US ONLY what refined product it requires to reimport.
Then, there’s Venezuela having to cut subsidized
crude to Central America and Caribbean clients.
(China demands ALL of Venezuela’s exportable oil
to service 41 Billion debt)
Mexico was obviously trying to fill that need. Clearly, politics, once again gets in the way of
facts on the ground.
Mexico can’t satisfy US and Latin American requirements.
Venezuela, until it sells off CITGO will limit US exports.
(Venezuela could return to ‘normal’ exporting by 2020)
Kenz300 on Thu, 5th Jan 2017 11:43 am
Seems like people / countries would want to be more energy self sufficient and rely on wind and solar for power generation.
Relying on OPEC or Russia for energy has not let to ideal outcomes.
No more WARS for OIL.
Moving away from fossil fuels is good for the planet, good for the people, and good for countries.
It is time to move to safer, cleaner and cheaper energy by using wind and solar.
The top 1%, the Koch brothers are heavily invested in foil fuels and they bank roll the RepubliCON party.
It is time for people to wake up and see that they are being CONNED by the top 1% and the RepubliCON party.
Anonymous on Thu, 5th Jan 2017 2:30 pm
kenzbot, it was so-called ‘democrats’, that waged wars for oil and hegemony for the last 8 years, and more ,if you include all the OTHER ‘democrat’ placeholders that also waged wars for oil in the past.
What are you, 8 years old?
onlooker on Thu, 5th Jan 2017 2:45 pm
Kenzbot, where have you been the last 70 years or so. The American empire has been acting in its same aggressive imperialist manner for all that time. And in that time we have had both Democrat and Republican presidents and Congresses. Are you really so foolish to make a that distinction between them. At least say they get money from slightly different sources or something like that. They are two sides of the same coin. Namely the corrupt puppets of the vast financial Bank Corporate apparatus. But why am I arguing with you, I think you may be a real automated program.
rockman on Thu, 5th Jan 2017 3:18 pm
Bob – “What gives? Mexico is clearly exporting to get cash, ignoring local markets.”. For what it’s worth Mexico became a NET fossil fuel (incl NG) importer about 2 years ago. Along the same line when oil prices were high Mexico was spending about 70% of its oil export revenue to pay for imported refinery products.
onlooker on Thu, 5th Jan 2017 3:31 pm
They’re has been rumors for a few years now, at least on the news, that the Cantarell Field has been depleting quite extensively, it may be reaching exhaustion now. wondering if Rock and anybody else has some updates.
Kenz300 on Fri, 6th Jan 2017 12:06 pm
Want to worry less about the price of oil?
There are alternatives.
Electric vehicles, biking, walking and mass transit are all part of making cities livable and enjoyable.
Bike to work day should be everyday. Employers need to provide places to park and lock bicycles and encourage employees to ride a bicycle to work.
Every school should encourage children to walk to school or ride a bicycle by providing safe places to lock and store bicycles and by supporting safe walking and biking paths that connect schools, homes and businesses. Kids would be healthier and get more exercise if parents stop driving them to school and bought them a bicycle.
Climate Change is real. It will impact all of us and future generations.
What kind of world will we leave to future generations?
BobInget on Fri, 6th Jan 2017 1:11 pm
Rockman
Two years of Mexico being a net crude (NG) importer, two months of attempting to fill Venezuela’s supply gap may, short term, bring down Mexico’s government. (One gallon of gasoline represents an average half day’s pay in today’s Mexico).
Demonstrators are getting killed. There are riots,
road blockages, this certainly effects North America’s economy.
All because?
China tied up Venezuela’s ENTIRE output for the next two decades. Accounts vary, Venezuela owes China at least 40/42 Billion USD.
The most recent loan (2.2 B) came with proviso, demand, what ever, that China get 2.5 M B p/d from Venezuela’s 2.4 million p/d production.
Clearly, Ven. can’t continue to supply Cuba, Nicaragua, Costa Rica etc with subsidized oil.
Mexico, PEMEX, must be coming to the same conclusion. Mexico too now needs billions to restore production. Playing that long game again,
China will extend more credit to Mexico or as is plain to see, pay in advance for oil exports.
It doesn’t take a genius to figure USA won’t
be getting full allocations from our third or fourth
largest contributor. OR maybe it does, considering how little press China’s South American coup received. (Ecuador too has been
locked up) Not to mention massive public resentment that 20% price hike is causing.
Americans had been ignoring Mexico and Central America till DT pushed his ‘Wall’ bullshit.
WE all agree, Venezuela, with the world’s largest stash of oil, production is trembling of the edge of failure. Chinese money, now USD, soon
swaps out for yuan once oil production resumes.
Mexico’s riots are a direct result.
Now, here’s conjecture.
First, we need to understand, our President Elect’s goal of ‘making America great, (again),
Involves the US and Russia controlling world oil exports, IOW’s weaponizing petroleum..
Heck, it worked for KSA, didn’t it ?
How to proceed;
Muslims, contrary to Islamic teachings seem perfectly happy with their low temp ‘family’ ‘proxy wars’. Until… The West and Russia out of greed,
got involved,.
Can we agree? 1) Muslims are thin skinned when it comes to criticism of their faith.
2) President Trump leaves little doubt about his feelings concerning Islam.
IMO, President Trump in Pottery Barn will antagonize, at minimum, a billion Muslims,
a few of which will refuse to sell us oil.
IMO the riots we see in Mexico are but coming attractions of chaos Americans are in for denied
Venezuelan, Arabian exports.
+
I’m not moving to Canada but my investments certainly have.
BobInget on Fri, 6th Jan 2017 1:32 pm
Tax season not withstanding , it appears the paper ‘glut’ is quite over.
at 1/6/2017 12:50:37 PM by
kxviswan
Incoming Vessels into LOOP
Iwatesan from India 2 MM barrels for the week of1/7/2016
Nectar from KSA 2 MM barrels and 0.5 MM barrels vessel from Russia for 1/14/2016
No vessel for the week of 1/21/2016
Phoenix Vanguard from India and Nave Energy from KSA for 1/28 both 2 MM barrels
Cosflying Lake from China to arrive 2/15
The traffic pattern from Middle East into LOOP has slowed significantly.