Despite the many recent non business-related headlines about him over the past month, folks within the oil and gas industry should still respect what Harold Hamm has to say. The Continental Resources CEO said Wednesday that he believes “the market doesn’t understand just how quickly oil companies are scaling back their activities, and as a result, oil prices could rebound faster than many observers expect.” Hamm made the comments as he addressed the Argus Americas Crude Summit in downtown Houston.
“Exploration and production companies can’t afford to borrow money, and falling stock prices make it hard to raise cash by issuing equity. You’re limited in what you can do if you don’t conserve cash. Oil companies will save cash by laying down rigs and deferring well completions until service companies’ rates drop further. Why complete a well today when these service costs are coming down? Some companies will likely stop producing oil from existing wells and simply leave it underground as they wait for oil prices to increase. It’s not going anywhere, it’s locked in like a rock.”
Hamm added that he believes oil production from the country’s biggest shale plays–such as the Bakken, Permian and the Eagle Ford—could begin to start decreasing mid-year or even sooner. That is news to other observers who say production would still likely increase this year even if drilling activity slows.
“U.S. producers will demonstrate market discipline and act uniformly,” Hamm said. “We have the same market forces on us, so we do the same thing. The market does not appreciate how rapidly U.S. producers are reacting.”
Hamm was uncertain of the level at which oil prices would bottom out at, but he says he believes that they’ll likely be less than $100 per barrel for the long term as the markets come to understand the size of the resource base U.S. shale drillers have access to.
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