RPT-Saudi oil minister to face rival US producers as price rout bites – Reuters

11 months ago Comments Off on RPT-Saudi oil minister to face rival US producers as price rout bites – Reuters

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By Luc Cohen

HOUSTON Feb 21 This week, Saudi Oil Minister
Ali Al-Naimi will for the first time face the victims of his
decision to keep oil pumps flowing despite a global glut: U.S.
shale oil producers struggling to survive the worst price crash
in years.

While soaring U.S. shale output brought on by the hydraulic
fracturing revolution contributed to oversupply, many blame the
70-percent price collapse in the past 20 months primarily on
Naimi, seen as the oil market’s most influential policymaker.

During his keynote on Tuesday at the annual IHS CERAWeek
conference in Houston, Naimi will be addressing U.S. wildcatters
and executives who are stuck in a zero sum game.

“OPEC, instead of cutting production, they increased
production, and that’s the predicament we’re in right now,” Bill
Thomas, chief executive of EOG Resources Inc, one of the
largest U.S. shale oil producers, told an industry conference
last week, referring to 2015.

It will be Naimi’s first public appearance in the United
States since Saudi Arabia led the Organization of Petroleum
Exporting Countries’ shock decision in November 2014 to keep
heavily pumping oil even though mounting oversupply was already
sending prices into free-fall.

Naimi has said this was not an attempt to target any
specific countries or companies, merely an effort to protect the
kingdom’s market share against fast-growing, higher-cost

It just so happens that U.S. shale was the biggest new oil
frontier in the world, with much higher costs than cheap Saudi
crude that can be produced for a few dollars a barrel.

“I’d just like to hear it from him,” said Alex Mills,
president of the Texas Alliance of Energy Producers. “I think it
should be something of concern to our leaders in Texas and in
Washington,” if in fact his aim is to push aside U.S. shale
producers, Mills said.

Last week’s surprise agreement by Saudi Arabia, Qatar,
Russia and Venezuela to freeze oil output at January levels –
near record highs – did not offer much solace and the global
benchmark Brent crude ended the week lower at $33 a
barrel and U.S. crude futures ended unchanged at just
below $30.

Prices fell sharply on Tuesday after Iran, the main hurdle
to any production control in its zeal to recapture market share
lost to sanctions, welcomed the plan without commitment. Iraq
was also non-committal.

Many U.S. industry executives understand that all is fair in
love, war and the oil market, but “the Saudis have probably
overplayed their hand,” said Bruce Vincent, former president of
Houston-based shale oil producer Swift Energy, which
filed for bankruptcy late last year.


The fact that OPEC members are talking to each other offers
a ray of hope, according to some industry figures, an indication
that the kingdom’s own fiscal pain could prompt it to change
tact and lead efforts to reach a deal. On Tuesday, Standard &
Poor’s downgraded Saudi Arabia’s credit rating.

“The pain is at a threshold right now. People are now
willing to sit down and talk about possible remedies to that
pain,” Mills said.

Texas, where oil production has more than doubled over the
past five years thanks to the Eagle Ford and Permian Basin
fields, is feeling acute pain.

The state lost nearly 60,000 oil and gas jobs between
November 2014 and November 2015, according to the Texas
Alliance’s most recent data. Only 236 rigs are still actively
drilling wells in the state, down from more than 900 in late
2014, Baker Hughes data showed.

Financial distress among U.S. producers has deepened. More
than 40 U.S. energy companies have declared bankruptcy since the
start of 2015, with more looming as lenders are set to cut the
value of companies’ reserves, often used as collateral for

Anadarko Petroleum Corp and rival ConocoPhillips
both cut their dividends this month, unusual moves that
showed financial stress.


The last time Naimi spoke at CERAWeek, seven years ago, OPEC
was slashing output to lift prices that sank to $40 a barrel
amid the global financial crisis, and he railed against
speculators who he blamed for the price plunge.

Few oil executives anticipated Naimi’s willingness to let
prices collapse this time around.

Some of them, such as Harold Hamm, the chief executive of
Oklahoma-based Continental Resources, even called his

Shortly before the November 2014 OPEC meeting, Hamm cashed
in Continental’s hedges, calling OPEC a “toothless tiger.”

In an investor call in August, Hamm said he expected OPEC to
begin cuts in September, adding, “we think that may be the first
of many.” Those have yet to come.

A Continental spokeswoman declined to comment on whether
Hamm would attend Naimi’s speech.

Continental shares have tumbled more than 60 percent during
the downturn, cutting Hamm’s personal fortune by more than $10
billion since 2014.

While producers may be more cautious now than before, some
are still betting that OPEC will bail them out.

EOG’s Thomas reckons prices will shoot up as high as $80 a
barrel in the second of the year – in part, he says, because
OPEC will eventually be forced to yield in the face of fiscal

“The whole world is under stress,” he said. “I don’t care
who you are. Even the Saudis are under stress.”

(Reporting By Luc Cohen; Editing by Terry Wade and Marguerita

RPT-Saudi oil minister to face rival US producers as price rout bites – Reuters