By Erin Ailworth
American oil drillers, battered and bruised by the steep drop in
crude prices, are descending on Houston this week to plan their
survival.
Thousands of industry executives gather in Texas every year for
IHS CERAWeek, but this spring's confab has a decidedly different
tone. The frenzied rush of the oil boom has given way to pensive
ruminations about U.S. energy companies being victims of their own
success.
First, American wildcatters fracked their way to massive
profits; then they got so good at squeezing oil from the ground
they created a glut of crude that sent oil prices tumbling. While
consumers enjoy lower fuel prices, energy companies around the
world are wondering what U.S. oil producers' next move will be.
"All eyes are on North America," said Daniel Yergin, vice
chairman of energy research at IHS, who will moderate five days of
sessions on oil, gas, power and politics.
It isn't just languishing energy prices that weigh heavily on
the sector.
The entire energy picture is changing, as China's economic
growth engine sputters and Saudi Arabia abandons its traditional
role as the world's swing producer of oil.
Too much supply and not enough demand has unbalanced the market,
sending crude prices plunging from more than $100 a barrel last
summer to around $55 a barrel today. It's a sharp reversal of
fortune that Mr. Yergin said begs for some industrywide
recalibration.
"This is a turning point for markets and for strategies," he
said.
In a dramatic shift from prior years' conferences, which mostly
featured international oil company CEOs and foreign energy
ministers, this year's line-up is loaded with Americans. Executives
from the biggest shale oil producers, including Continental
Resources Inc., Pioneer Natural Resources Co. and ConocoPhillips,
are scheduled to speak. These companies, which spent the last five
years drilling as fast as they could, are now slashing budgets,
laying off workers and downsizing their drilling plans.
ConocoPhillips will spend 33% less this year on its capital
budget than it did last year, but the company is still doubling
down on drilling new shale wells between now and 2017. Chief
Executive Ryan Lance, who will help kick off the conference Monday,
has said that fracking in the U.S. remains the most profitable
investment his company can make.
Conoco is trying to sell off many of its older, conventional oil
and gas wells around the country so it can focus more exclusively
on new shale drilling. During a recent presentation to investors,
an analyst asked Mr. Lance whether he's considered selling the
entire company. Mr. Lance's reaction: "No, not even no, but hell
no."
A better way for American energy producers to weather the
downturn would be selling their crude to foreign buyers, he said.
But since the 1970s the U.S. has limited access to overseas
markets, banning the sale of oil pumped in the U.S. except for a
few limited circumstances.
Mr. Lance, who will speak on a panel about the future of U.S.
energy policy, has been making the rounds in Washington, D.C. He
has asked Congress to lift the oil export ban so U.S. energy
companies can keep pumping.
It's a sentiment echoed by Harold Hamm, who runs Continental
Resources, one of the biggest drillers in North Dakota's Bakken
shale.
The piecemeal approach the U.S. government has taken--approving
some oil sales to Canada and rolling back export restrictions on a
certain type of ultralight oil--doesn't go far enough, Mr. Hamm
told the Wall Street Journal in an interview earlier this
month.
Because American crude can't be exported, oil pumped in the U.S.
often sells for much cheaper than crude pumped in other parts of
the world like the North Sea and Saudi Arabia. U.S. oil prices have
ranged from $5 a barrel to $15 a barrel in the last two years. That
discount on U.S. crude oil could be the factor that makes or breaks
some American oil companies during this downturn, Mr. Hamm
said.
"That last $10 a barrel that we are giving up in discount
probably means the difference of making it or not for a lot of
smaller players," he said.
The Week Ahead looks at coming corporate events.
Write to Erin Ailworth at Erin.Ailworth@wsj.com
Access Investor Kit for Continental Resources, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US2120151012
Subscribe to WSJ: http://online.wsj.com?mod=djnwires