In Oil & Companies News 11/05/2015
Oil prices have rallied lately, but not enough to persuade producers that a nearly year-old slump will end any time soon.
Take Doug Suttles, the president and CEO of Alberta, Canada-based Encana Corp., who was in the midst of transforming his company from primarily natural gas production to oil production when oil prices began to plunge last June.
Suttles visited Washington, D.C., the other day to make a pitch at the U.S. Chamber of Commerce for an end to U.S. restrictions on oil exports, a major campaign of the industry this year and one that producers say could provide them with some relief from low prices.
As he spoke, the price of West Texas Intermediate, the U.S. benchmark for oil, was on its way to closing at its highest level of the year, just under $61 a barrel, a marked improvement from its 2015 low of $43.39 in March, though still far below its 2014 peak of $107.95.
“If it stays at that level, there’ll be some more (drilling) activity eventually,” Suttles, who took over as Encana’s top executive in 2013, told the chamber audience. “But right now, that’s very volatile. Because it’s $60 today doesn’t mean it’s going to be $60 tomorrow or next month.”
No sooner had he spoken than prices began to fall again, partly in response to a stronger dollar. On Friday, WTI settled at $59.39.
That unpredictability is challenging for oil producers large and small as they cope with one of the biggest upsets ever in oil markets. How to weather the storm, including cutting capital expenses and personnel without jeopardizing future opportunities, is testing companies like Encana, which had seen its stock fall nearly 40% in the past year as he spoke.
“When we set our budget for this year, we were using a WTI oil price of $50 and a natural gas price of $3 (per million British Thermal Units),” Suttles said. “And depending what day of the year you look at, oil’s traded at better than that or worse than that, and, unfortunately, natural gas is almost always traded lower than that.”
In a year of surprises for the industry, the biggest one for Suttles is the quick pace at which companies cut back on investments in exploration and production in the U.S. and Canada.
“We’ve pulled so much capital and activity out more quickly than I’ve seen in 32 years,” Suttles, a former executive and engineer with BP and Exxon, said of the slide.
All told, the industry is in the process of cutting its capital spending in the U.S. by $50 billion, or 35%, this year, according to Encana.
“So, today’s price isn’t hugely relevant,” Suttles said. “It’s really what’s 2016 going to do and what’s 2017 going to do. And people need to see some belief that the oversupply has worked its way out of the market and prices are going to come up a bit. Then you’ll see activity come up, as well.”
By the way, Suttles and his peers maintain the U.S. government could help foster that recovery by lifting 40-year-old restrictions on exporting U.S. crude oil. In fact, like Conoco Phillips CEO Ryan Lance earlier this year, Suttles was at the chamber to beat the drum for such action in Washington.
“U.S. crude sells at about a $7.50 discount to global,” he said, citing the difference between WTI and Brent, the benchmark for oil used in most of the world. “If we got rid of the export ban, our price would go up $7.50 the very next day. I guarantee you, more rigs would go to work, more people would be employed, more taxes would be paid.”
Lifting the ban is still a tough sell on Capitol Hill, where some lawmakers warn it would result in higher gasoline prices, despite numerous studies to the contrary.
But ending the export ban “is really beyond our control,” Suttles said, like so much else taking place in today’s turbulent oil market.
