‘Supply shortage not to push up oil prices’

Bloomberg

The world’s largest publicly listed oil company says ample production from US shale regions will keep prices subdued for years to come, disagreeing with others in the industry who have warned about a looming shortage.
Rex Tillerson, chief executive officer at Exxon Mobil Corp., presented an upbeat view of how technology will allow companies to pump more, preventing a price “blow out” in the future. Falling costs in America’s shale fields will counteract OPEC’s renewed commitment to supply management and the long-term effect of underinvestment in exploration.
“I don’t necessarily have the view that we are setting ourselves up for some big collapse in supply within the next three, four, five years,” he told executives and officials at the annual Oil & Money conference in London.
Tillerson, who has worked at Exxon for more than four decades, put himself at odds with officials including Saudi Arabia’s Minister of Energy and Industry Khalid Al-Falih and rivals such as Patrick Pouyanne, the head of French oil giant Total SA. The
Organization of Petroleum Exporting Countries and the International Energy Agency have also warned that the market could face a supply crunch after the industry cut spending to the bone to weather a prolonged downturn. In its World Energy Investment report last month, the IEA said that oil companies have cut investment in new production by 24 percent this year, following a 25 percent reduction in 2015 due to low oil prices. Next year they could cut spending for an unprecedented third year in a row, the Paris-based agency warned. Exxon’s upbeat view may be reassuring for consumers, but it presents problems for the company. Exxon excels at huge, capital-intensive and technically challenging projects that make sense when oil prices are significantly higher than $60 a barrel. Like other behemoths, unless it can cut costs further, Exxon could see itself squeezed by nimbler U.S. shale producers.
Cheaper, faster fracking means tight oil remains viable, even at a relatively low price, Tillerson said. Large swathes of U.S. shale become economical at $60 a barrel as costs fall and productivity increases, he said.
Other speakers at the conference echoed his views. ConocoPhillips CEO Ryan Lance estimates that new wells are viable in the Permian, Eagle Ford and Bakken shale basins at just $40 a barrel, he said.