About $60/bbl is the right price to bring producers back to the unconventional oil patch. But it will have to be a solid $60 that sticks around for a while before the smart money gets excited, EOG Resources Inc. CEO Bill Thomas told a Houston audience Wednesday.
“One of the things that’s not going to happen — I know EOG is not going to be doing this — we’re not going to be ramping up production the first time oil hits $60. We’re going to make sure the market is in good shape and it’s balanced…The industry kind of tried that last year and it didn’t work. We’re not going to do that again,” Thomas said at the NAPE Summit Business Conference.
The industry knows the marginal cost of oil is lower than $110/bbl, a price that yielded the current oversupply. Thomas said he thinks the marginal cost is $70-80/bbl.
“Nobody believes that current prices are anywhere close to sustainable. The whole world is under stress,” he said. “I don’t care who you are; even the Saudis are under stress. So it’s going to go up, and it will migrate up to $70 or $80 dollar. Hopefully that will begin to happen in the latter part of this year. Certainly by 2017 there should be enough supply off the market to make a difference in the price.”
EOG is the largest acreage holder in the Eagle Ford Shale and has been growing its position in the Delaware Basin, a popular sub-basin of the Permian (see Shale Daily, Nov. 9, 2015).
While much has been made of increasing lateral lengths and technological advances — which, indeed, have contributed to production growth — the real driver of the oil surplus has been the number of wells turned to sales, Thomas said. Robust drilling activity accounts for about 75% of the reason production climbed as high as it did, and the reason it will drop in the future.
Laterals of 9,000 to 10,000 feet are about long enough, Thomas said, so there’s not much to be gained in production by going further, at least not economically. “Completion technology, though, is not even close to peak. We plan to and I think others will continue to make better and better wells as we go forward,” he said.
Thomas said it was disappointing that production didn’t drop off last year as much as some expected, but this year should see declines, based on the significant cutbacks to drilling budgets seen so far. “Everyone is very focused on balance sheets. That should result in a whole lot fewer wells being completed,” he said.
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