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Fewer US rigs may not cut shale oil output: Exxon CEO

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The precipitous drop in the US drilling rig count over the past few months may not cause a long-term drop in shale oil output as the productivity of new wells continues to rise, Exxon Mobil Corp's chief executive said on Tuesday.

[HOUSTON] The precipitous drop in the US drilling rig count over the past few months may not cause a long-term drop in shale oil output as the productivity of new wells continues to rise, Exxon Mobil Corp's chief executive said on Tuesday.

CEO Rex Tillerson noted that companies idled many natural gas rigs when prices crashed around 2008. But six years later, gas output is higher than ever and prices are lower than before.

"Clearly a significant decline in rig activity did not lead to a sharp drop in gas output," Tillerson said about the natural gas industry at the IHS CERAWeek energy conference in Houston."Is that analogous in tight oil? We'll find out."

The US oil rig count has fallen in half over the past year to 734 now, according to Baker Hughes, as producers responded to a 50 per cent slide in crude prices since June.

That pullback, along with short timeframes that can bring new wells online in just weeks, has contributed to the view that the United States is the world's new swing producer.

The US Energy Information Agency has forecast American oil output may dip as early as this month and certainly in the third quarter, before rising to around 9.18 million barrels per day at year's end.

Roger Diwan, energy analyst and vice president of IHS Financial Services, said US output could easily rise by 500,000 bpd in 2016 even if spending does not rise from this year's reduced levels. "The system can adjust very quickly," Mr Diwan said.

Mr Tillerson, reiterating previous comments, said the market is in a phase of price discovery to figure out the real cost of producing a barrel of shale oil, which tends to be costlier than conventional liquids.

The downturn will "allow the market to determine where the marginal cost of supply is," he said. "Understanding how the resources really behaves at a reduced level of investment is something we will all learn." Many US shale oil producers have slashed spending by 25-70 per cent in recent months.

Exxon, whose shale work makes up only a fraction of its global output as the world's top oil company, reduced its capital program by a smaller percentage to around US$34 billion. "We reduced our capital program about 12 percent," Mr Tillerson said. "We'll see throughout the year whether we stay there or not, we're seeing a lot of cost efficiencies."

REUTERS