The same kind of innovative spirit that helped the United States regain the title of the world’s leader in oil and gas production will also help the industry weather current market downturns, says the chairman and chief executive officer of ConocoPhillips.
Over the past decade, horizontal drilling and hydraulic fracturing have unleashed a flood of new oil and gas production in the United States. Despite a year-long decline in prices, “The U.S. energy renaissance is here to stay,” said Ryan M. Lance, a Montana native.
Lance said Thursday that he has witnessed six downturns in the oil and gas industry since graduating from Montana Tech in 1984. “I’m waiting for the sixth upturn, and I guarantee you it will come,” he said, delivering a keynote address during the third day of Montana Energy 2016.
Lance did not gloss over the trying times that are plaguing his industry. Low prices for oil and gas have cut energy companies’ revenues by 70 percent. ConocoPhillips and other producers have drastically curbed their investments in the wake of an oversupply of oil and gas.
“It’s pretty easy to operate when oil is $100 a barrel, and it’s a lot harder when it’s $30,” Lance said.
In 2014, ConocoPhillips spent $17 billion in developing its oil and gas properties. That figure dropped to $10 billion last year and was cut again to $6 billion in 2016.
Over the next three to four years, oil and gas companies are projected to cut their investments by $1.6 trillion if the current trend in low prices continues. That drop in investment could reduce the nation’s gross domestic product by 0.4 percent. While that may not seem like much of a drop, it’s significant when you consider that the nation’s economy is growing at a rate of around 2 percent per year, Lance said.
Worldwide production in crude oil is outstripping demand by about 2 million barrels per day. But that surplus is expected to disappear within a few months as demand picks up, Lance said.
ConocoPhillips projects that prices for oil and gas will remain fairly weak through the end of 2016, with at least some chance of showing recovery next year, Lance said.
Which producers are best prepared to bounce back from the downturn? Lance says they have the following characteristics.
Those with low-cost supplies — ConocoPhillips and other producers involved in the shale oil revolution — are well poised to bounce back.
“It’s these low-cost supplies that protect investment returns even when commodity prices decline,” Lance said.
Companies whose assets don’t require a lot of capital to ramp up production are also poised for recovery, he said. The U.S. shale industry has a strategic advantage because wells can be brought on line relatively quickly when demand increases.
Finally, companies with the strongest balance sheets are best prepared for the future. “You’d better be able to power through these down times of a 70 percent drop in revenue, and power through the decline to be in a position when the market starts to rise.
Sen. Steve Daines, R-Mont., who hosted the three-day energy conference, said America has a bright future thanks to innovations developed by the oil and gas industry.
“The best solutions to the challenges we face in our nation do not come from inside the beltway,” Daines said. “They come from Montanans, and they come from summits like this.”