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Page added on October 20, 2014
Why Harold Hamm Isn’t Worried About Plunging Oil Prices
Count Harold Hamm, the billionaire CEO of Continental Resources CLR +1.34%, as one oil man not worried about the plunge in crude prices to $82 a barrel.
“Notice how it happened all at once,” he says, starting off our phone call. The suddenness of oil’s plunge followed the Saudi assertion a week ago that oil was in oversupply, they could live with $80 oil for a couple years, and didn’t plan to cut their own output.
Empty talk, not market fundamentals, moved the price, says Hamm. ”It’s not supply-demand related.” On the contrary, “this is one country, the Saudis, attempting to dictate world oil prices.”
And it’s not going to work, he says. If the Saudis really want to send oil prices lower — as a method of applying political pressure to Russia and Iran — they’ll have to back up their jawboning by adding more barrels to the world market.
OPEC would like to grab back market share from U.S. drillers, but neither the Saudis, nor any other OPEC producer has any excess production capacity with which to push aside American barrels. So the hope is that they can slow the American oil boom by just talking prices lower, below the break-even point for drilling tight oil out of shale.
“The market is not in glut,” says Hamm. “It’s a case of the emperor has no clothes.”
Indeed, the U.S. government’s Energy Information Administration estimates that global oil consumption (91.5 million bpd) has kept pace with supply growth (91.8 million bpd).
And although fossil fuel demand is stagnant in developed nations like the U.S. and across Europe, it continues to surge in developing nations, with China’s daily demand increasing by 370,000 barrels in each of the past two years, according to the EIA.
“We need more supply. It’s crazy to think that China and India won’t continue to demand more oil,” Hamm says. “Even if overall economic growth slows, oil demand will grow, because they want something other than a bicycle; they want to farm with a tractor instead of oxen.”
What’s more, the oil industry is constantly fighting against natural production decline rates. Worldwide, output from the average oil field declines by about 5% a year. Declines are much steeper in the big new U.S. fields like the Bakken and Eagle Ford, where a well might come on line at 1,200 bpd, but lose half of that within four months. Even with technological advances to get more oil out of old fields, drillers need to bring on about 4 million barrels per day of new volumes, just to keep world production flat.
And although there remains some low-hanging “easy oil” to be harvested in Iraq and Iran, most new supplies will require sustained high oil prices to justify investment — prices higher than the $100 or so that we’ve seen in recent years.
American drillers in Texas, Pennsylvania, North Dakota and Oklahoma, have shown how horizontal drilling and hydraulic fracturing can unleash a supply boom. Hamm’s Continental is on track to hit 200,000 bpd this year, up from 37,000 bpd five years ago. And soon, says Hamm, the Saudis and other OPEC nations will have to follow suit as their easy oil dries up.
The world should frankly be shocked that $100 oil hasn’t unleashed a supply boom anywhere outside of the U.S. Take Venezeula, for example. That country depends entirely on oil revenues to keep afloat and supposedly has the world’s biggest recoverable reserves, at some 500 billion barrels. And yet in the past decade Venezuela’s output has slid from 3 million bpd to 2.5 million. Sure, Venezuela is run by buffoons, but you’d think that with the survival of their regime at stake, they would have figured out how to at least keep oil output flat. That Caracas is not squabbling with Kuwait and Abu Dhabi and Algeria over who should get more room under the OPEC member quotas to sell $100 crude to the world indicates that maintaining, let alone expanding, crude supplies isn’t as easy as they’d like us to think.
Indeed, Hamm doesn’t believe the oil industry dogma that the Saudis maintain an extra 2 million bpd of spare capacity they could turn on to meet a supply disruption, says Hamm. “They Saudis don’t have the capacity. They are wide open.”
In time, the Saudis will need to start their own horizontal drilling campaign like we’ve been doing in the United States, says Hamm. But they don’t want to, because it would be expensive to ramp up, and the margins are much slimmer than what they derive from supergiant fields like Ghawar and Manifa. Such a move would indicate that even the Saudis had run out of cheap oil to exploit, thus requiring a structurally higher oil price for the Kingdom to balance its long-term finances.
With this latest effort to jawbone oil prices down, the Saudis “have overplayed their hand,” says Hamm. “It will be increasingly challenging for them to simply talk down oil prices.”
25 Comments on "Why Harold Hamm Isn’t Worried About Plunging Oil Prices"
Plantagenet on Mon, 20th Oct 2014 10:35 pm
Howard Hamm is right. The Saudis must know that Ghawar is close to peaking. It won’t be long now until Saudi oil production starts falling….and falling….and falling.
Nony on Tue, 21st Oct 2014 1:41 am
I trust the futures market more than HH. And neither is gospel. But one has money behind their beliefs. Welcome to the new world of $85 oil. Not as nice as the $30 world. Better than the $110 world. And thankfully not a $150 world!
pablo on Tue, 21st Oct 2014 3:01 am
It is shocking that Forbes recognizes the end of cheap oil and even Saudies can not get more oil. He is just saying that the demand will rise but not the production
meld on Tue, 21st Oct 2014 5:28 am
It’s my recolection that the Saudi’s have been using some kind of water injection in their wells haven’t they? It was my understanding that due to this technique once these wells start declining they will start declining Very very quickly. Is this correct?
henriksson on Tue, 21st Oct 2014 6:04 am
A democratically elected government can now be called a regime?
Sure, the United States is run by buffoons, but with the survival of their regime at stake, they have figured out how to at least keep oil output flat.
rockman on Tue, 21st Oct 2014 7:09 am
Meld – Not exactly. Many, if not all, of the Saudi reservoirs are water drive to some extent. Which means they’ll produce increasing amounts of water as they deplete. What you may have read is that when water FIRST begins to be produced with the oil it’s a sign the reservoir is entering the decline phase. In general that’s true. And when the water drive isn’t strong enough they’ll inject produced water into it. At some point the project might change classification from “pressure maintenance” to “water flood”.
In reality as the % of water increases over time the decline rate actually decreases. Often only 1% or 2% per year. That’s the good news. The bad news is that at that late stage the water % is very high and the oil recovery is just a small fraction of what it was initially. What helps the KSA and other folks in these huge fields is the delivery rate of the old wells. The oil % might only be 20% to 30% but if the well is producing 20k to 30k bbls of FLUID per day that would mean it was delivering many thousands of bopd. Compare that to the average production of all US oil wells today: less than 10 bopd.
buddavis on Tue, 21st Oct 2014 7:40 am
Nony
Harold has money behind his beliefs. If Continental starts releasing rigs, then I would say he is all talk. If he keeps drilling away, I would say he is putting his money where his mouth is. He may be wrong, but he absolutely is putting money behind his position.
Northwest Resident on Tue, 21st Oct 2014 10:13 am
My impression of Mr. Hamm is that he is a master liar and manipulator, both a director of and a leading role actor in the massive propaganda campaign that exists to hype shale oil investment opportunities. There is no question but that Mr. Hamm is one very cool, sophisticated and extremely knowledgeable individual. He is the master of shale investment Ponzi schemes, the undisputed king. The $17 billion he’s made from the domestic oil boom has come directly out of suckered investor’s dollars, or from land lease/sales to other shale operators looking to get a slice of the action while there are still plenty of suckers with cash to invest. Of course Mr. Hamm will say anything and everything to promote the “shale boom” illusion. He’s a very smooth operator. If you’re one of those who really want to believe in American energy independence or the profitability of investing in shale oil extraction, then Mr. Hamm has some wonderful bed-time stories to tell you — he’ll say everything that you want to hear, and he’ll say it with the same style and audacity as a top-of-the-line used car salesman.
bobinget on Tue, 21st Oct 2014 10:33 am
Many thanks to ‘Rockman’ for that clear water flood explanation’.
Me thinks we all have problems dealing with any number over a million. The words ‘six billion’ spill out of our mouths as easily as ‘ten thousand’.
If it took six billion years to accumulate all that Saudi oil why should we be shocked if we can’t extract it all in one hundred?
JuanP on Tue, 21st Oct 2014 11:24 am
I agree with NR’s comment about HH. He is just an industry oligarch defending his investments.
I also was surprised by Hamm’s comments on Forbes. His admissions of declining production from existing wells and the lack of KSA’s spare production capacity are refreshingly honest, even if motivated by self interest.
Plantagenet on Tue, 21st Oct 2014 12:40 pm
NR’s suggestion that Hamm is a liar who is manipulating investors and other posters observations that Mr. Hamm is honestly presenting the realities of oil depletion and rapid declines from fracked wells present an interesting contrast in perspective.
Nony on Tue, 21st Oct 2014 12:43 pm
HH is defending his investments (partially public company that benefits from high prices of oil or the perception of them). If you listen to some of his interview on Cramer, he was somewhat nuanced and definitely said that there may be pullback in employment in oil if prices remain in the 80s. I think the point he is making is that they will continue to exist as a going concern (making money, existing, doing some production) and just manage less drilling in marginal spots if oil stays down.
Also, he is a little bit promoting the view that prices come back up. But that’s just another guy opining on the direction of oil prices…and they all end up wrong (analysts, peakers, cornies, investors, majors, independents, etc.)
One interesting thing is that rig count in the Bakken is not yet down according to Milliondollarway blog. I think it is down somewhat US-wide though. Also, I don’t know how long it takes for contracts to be up, etc. That’s why I asked Rock if he had seen a drop in prices for rigs yet (onshore hz).
Northwest Resident on Tue, 21st Oct 2014 1:09 pm
Plant — A good manipulator and liar knows that there are certain facts that can’t be denied, otherwise the whole façade falls apart.
It seems to me that HH is making his appearance in the news at this point in time to assure shale investors that all is well, that despite recent drops in oil price it is still “business as usual”.
You’d expect the top dog in a Ponzi scheme that is under threat of disintegrating to try and calm his investors with that kind of reassurance, especially given recent events, wouldn’t you?
While at the same time, other investment advisors and analysts are saying now is the time to pull out of shale investments — do it fast before the herd stampedes.
Mr. Hamm doesn’t need to present the realities of oil depletion and rapid declines from fracked wells — that is well known and widely recognized information. He MUST recognize those facts, because those facts are on everybody’s mind, and he can’t escape them.
So, like any skillful PR operative, he weaves a story around what he can’t deny, the purpose of which is to spin reality and influence opinion in his favor.
I and nobody else blames him for doing what he is doing — I even believe he is doing me and everybody else a favor by manipulating his investors into staying invested. But it IS a Ponzi scheme that he presides over, it will all fall apart, investors will most definitely come out big losers — but yeah, let’s stretch it out a little longer.
I only point out on this website and on this forum how dishonest Mr. Hamm’s appeals to his investors are, because this is a place for the hard cold realities to be shared and discussed among the few of us who are willing and able to recognize and deal with them.
BTW, of course a troll such as yourself would come to Mr. Hamm’s defense. For all we know, you’re on his payroll, and my guess is you probably are. You certainly aren’t here to engage in meaningful discussion regarding peak oil and its consequences. You do chime in regularly with one-liner quips that are designed to make you seem like “one of us”, but those are just all part of your disguise. What you’re really here for is to disrupt, be argumentative, to post extremely offensive and distasteful tripe designed to turn off would-be visitors to this site, to defend fracking and attempt to kill high-profile opinions that shed light on the Ponzi scheme nature of the whole unconventional oil extraction business, and to just be as obnoxious and foul as you can be. The obnoxious and foul part you excel at, the rest of it I would give you a “fair” and “needs improvement” on.
Northwest Resident on Tue, 21st Oct 2014 2:19 pm
Retraction — My choice of the word “liar” was a poor one in regards to Mr. Hamm. A liar has deceitful intentions that generally benefit only him/herself and/or further that person’s agenda at the expense of others. Liars are necessarily bad people, and I don’t think Mr. Hamm is that.
I believe that HH is doing a great service to America and to the world in the role that he is playing. Were it not for fracking, and were it not for the illusion of BAU that fracking enables, the world as we know it would almost immediately enter a period of intense turmoil. That’s going to happen anyway, but as I’ve said all along, fracking is buying us time. THAT *IS* a valuable service.
Let’s call Mr. Hamm a disseminator of disinformation rather than a liar. My guess is that Mr. Hamm is an outstanding moral character and really nice guy. Sure, he’s getting super wealthy leading the charge on shale plays, but what the heck, who cares. The main point is we (me, you, everybody) really needed the time that fracking has bought us. That time bought by fracking has been and is vitally important.
Not a liar — a contributor and major player in the illusion of BAU that is being broadcast to the masses.
Plantagenet on Tue, 21st Oct 2014 2:29 pm
NWR:
Your reading comprehension is very low. I didn’t “come to Mr. Hamm’s defense” I simply pointed out that your claims that he was lying contradict other posters who noted that he was telling the truth.
I suggest you try actually reading the posts instead of making stuff up—
CHEERS!
Northwest Resident on Tue, 21st Oct 2014 2:40 pm
I didn’t “come to Mr. Hamm’s defense”.
Yeah, you did, in an indirect way, by pointing out the discrepancies noted. Whether you realized you did or not is another thing.
Yeah, reading comprehension has always been my weak point, ever since my 6th grade IQ test where I scored the highest score ever in the state for reading comprehension and went on to make straight A’s in college through all of my liberal arts and reading/writing assignments.
I know, Plant, you’re still just being the same obnoxious false-accusing troll you’re very well known to be. That’s who you are, and what you’ll always be.
CHEERS!
JuanP on Tue, 21st Oct 2014 2:44 pm
A good lie will always contain as much truth in it as possible. Hamm was honest with issues were the truth favored him, and dishonest were the truth was against him. He is a skillful liar.
I can’t agree with NR that the outcome is good for humanity, though. I do understand that many here on this forum have used this time well to prepare, but the environmental costs outweigh the benefit of this extra time for most of humanity.
Plantagenet on Tue, 21st Oct 2014 2:57 pm
Hi NWR: I had to laugh at your boast that you read at a 6th grade level and that you got As in your liberal arts classes in college. I think I’m starting to understand why you don’t understand many of the discussions here, especially when they involve scientific or technical topics—like your boneheaded insistence that kerogen shales were oil producers thanks to tracking. NWR—You have zero scientific background, don’t you?
Hahahahahahahahahahah!
Northwest Resident on Tue, 21st Oct 2014 3:13 pm
To anybody reading these exchanges between Plant and I, notice how he has shifted the conversation away from my original points about Mr. Hamm and the shale Ponzi scheme by engaging in personal attacks and false accusations — the same crap that political operatives use against their opponents when they are under threat of being exposed for the fools they are.
Plant doesn’t want you to dwell on the main topic, so he starts throwing mud and trying to create confusion. That’s what paid trolls do.
Back to the main topic, which in this case is that when Harold Hamm says he isn’t worried about plunging oil prices, he is most definitely being untruthful and spinning a combination of undeniable facts and demonstrably untrue statements posited as “fact” to suit his own purposes. That purpose is to try to prevent those who have their money invested in shale oil extraction from withdrawing their investment. Pure and simple. That’s why HH is “back in the news” at this opportune time.
Plant, you’re up next. What juvenile slur and/or misdirection will you attempt this time?
Plantagenet on Tue, 21st Oct 2014 3:29 pm
To anybody reading these exchanges between NSR and I, notice how he has shifted the conversation away from my original points about Mr. Hamm and shale oil production declines by engaging in personal attacks and false accusations — the same crap that political operatives use against their opponents when they are under threat of being exposed for the fools they are.
NWR doesn’t want you to dwell on the main topic, so he starts throwing mud and trying to create confusion. That’s what paid trolls do.
Ergo, NWR is a paid troll! No doubt TPTB pay him to publicize their role in the world. In fact, in addition to boasting in this thread about how he reads at a 6th grade level and once got an A in a liberal arts class at college, NWR has boasted in previous threads about how he is a paid PR agent. AH-HAH! Now it all makes sense!!!
zaphod42 on Tue, 21st Oct 2014 4:56 pm
JuanP said: “I agree with NR’s comment about HH. He is just an industry oligarch…”
Actually the word is plutocrat. Oligarchy is rule by the few. Plutocracy is rule by the wealthy.
In fact, America is a plutocratic oligarchy… but HH is merely a plutocrat, whose claim to power derives strictly from money.
Nony on Tue, 21st Oct 2014 6:43 pm
Prioritize your dinner partners amongst the following three (1-3)
Warren Buffet
Harold Hamm
Mason Inman
Plantagenet on Tue, 21st Oct 2014 7:16 pm
Inman, then Hamm. I’d just as soon miss dinner with Warren Buffet—-don’t want to hear him whining about the billion dollars he just lost investing in IBM.
Davy on Tue, 21st Oct 2014 7:28 pm
Uptight 1%ers are so boring. I’ll pass.
Nony on Tue, 21st Oct 2014 7:29 pm
Buffet, Hamm, Inman
Buffet has brains and $$. Hamm has $$ and knows oil drilling which excites me. Inman is fair-minded for a peaker (“smart for a Marine”).