A quicker, but ‘sawtooth,’ oil recovery is coming: EOG executive
A faster, but uneven, oil recovery is emerging, with more production taken offline than anticipated and demand seemingly returning at a quicker pace than previously believed as much of the global economy reopens amid the coronavirus pandemic, EOG Resources executives said June 2.
The shale-pioneering firm plans to bring much of its shut-in production back online during the third quarter after removing an estimated 125,000 b/d of crude oil in May, said Kenneth Boedeker, EOG’s executive vice president of exploration and production, while speaking remotely at the RBC Global Energy and Power Conference.
But, as more producers bring additional volumes back online, that will mean more ups and downs in the eventual oil price recovery, he said.
“With oil in the mid-$30s/b, some of the existing shut-ins will be brought back online. So it’s going to be a bit of a sawtooth,” Boedeker said.
Apart from shutting in production, EOG also delayed the startup of about 150 new wells until the back half of 2020, while cutting its annual capital budget nearly 50% from $6.5 billion to about $3.5 billion.
“We can maintain our production levels from the fourth quarter of this past year and our dividend at $40/b oil,” Boedeker said. “We’ve always come out of these downturns stronger than when we went into them.”
EOG CEO Bill Thomas, who spoke May 27 at the Bernstein Strategic Decisions Conference, also offered a bullish attitude on oil, despite the unprecedented crash this year.
“I don’t think storage is going to fill up [as] everyone thought, and I think demand recovery is picking up all over very rapidly,” Thomas said.
With producers cutting their budgets by more than 30%, on average, he said, great fiscal discipline is finally being baked into the industry and that should prove better for oil prices longer term.
“As we emerge from the downturn, I think we’re going to see a hyper-disciplined industry than when we’ve seen in the past,” Thomas said. “That’s going to be good for the industry. I think the price environment might be better going forward.”
Boedeker and Thomas agreed that the shale industry will be smaller in the future, with fewer players, but they bemoaned that the consolidation process will take a year or so to play out.
EOG is more actively looking at bolt-on acreage acquisitions as the firm focuses its activity in the Permian Basin, South Texas’ Eagle Ford shale, and the Powder River Basin. But the firm remains wary about spending too much on bigger deals, especially larger corporate acquisitions, they said.
“Another thing hurting a lot of consolidation is the debt levels of a lot of companies in the market that should be looking to consolidate,” Boedeker said.
That said, consolidation remains inevitable, they agreed.
“There [are] too many players in the business right now, and there’s a super need for consolidation,” Thomas said. “There’s not as many acquirers as there are people that want to be acquired. They have got to get their balance sheets in [a] better position if they want to merge their companies.”
As for EOG, they said, the company is focused on only drilling new wells if there’s a 30% return with oil priced at $30/b.
“Every dollar we spend at EOG must have generated really good returns,” Thomas said. “We reshuffled our drilling inventory. We’ve had no layoffs, no office closures.”