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U.S. Shale and OPEC Share Steak in Uneasy Truce at Houston Dinner

These translations are done via Google Translate

March 6, 2018, by Ernest Schedyer and Ron Bousso

HOUSTON (Reuters) – Around the room at Houston’s The Grove restaurant on Monday, at several tables, sat a group of shale executives, interspersed with energy ministers and officials representing OPEC members, where they dined on fish and steak.

They should have had a lot to discuss amid the fervor of CERAWeek, the most notable U.S. energy event of the year. But what could have been two of the biggest topics of conversation – oil prices and OPEC output levels – were not in the cards, as such a broad conversation would run afoul of U.S. antitrust rules against price-fixing.

“It was quite a congenial group of people. We had a really wonderful conversation,” said Tim Dove, CEO of Pioneer Natural Resources Co (PXD.N). He noted that Mohammed Barkindo, OPEC secretary general, gave a speech, and “his main message was that they believe very strongly that demand is going to be significant moving forward in terms of growth.”

Just a year-and-a-half ago, such a gathering would have been difficult. The two sides were involved in a price war that left many shale firms bankrupt. The Organization of the Petroleum Exporting Countries pumped all-out from 2014, pushing down the oil price in a campaign for market share aimed at pushing the shale industry out of business.

The price war sparked an industry recession, and oil prices CLc1 LCOc1 plunged to a low of $27 a barrel. But shale cut costs and survived, and eventually the low price was too much for OPEC members to bear.

OPEC cut output in 2017, effectively making way for shale.

Since then, there has been an uneasy truce between OPEC and the shale industry. Even as OPEC ministers sit down with shale executives, it still grates for them that they have had to cut production and cede market share to U.S. oil firms that pump as much as they can.

U.S. firms cannot engage in agreements to control supply or push up prices due to anti-trust laws in the United States. But shale firms are enjoying the benefits of OPEC members doing what they cannot, driving U.S. production to a record in late 2017 at more than 10 million barrels a day.

Occasionally, OPEC ministers show signs of their frustration. Nigerian Oil Minister Emmanuel Ibe Kachikwu told Reuters on Monday that “some of the same companies that are working in shale are the same companies working in OPEC,” and that they should “take some responsibilities in terms of stability of oil prices.”

At the same industry gathering a year ago, Saudi Arabia’s oil minister said his country should not have to underwrite the investments of others. But both OPEC ministers and shale executives know that there is nothing, really, that shale firms can do.

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Several executives in Houston this week – including at least one who attended Monday’s dinner – declined to discuss the meet-up.

“The dinner was just generalizations and platitudes,” said Mark Papa, CEO of Centennial Resources Development Inc (CDEV.O), who also attended.

“It’s just a statement that everyone will work together to make sure the oil market is well-supplied and everyone is happy to be working together,” he said.

Along with Barkindo, ministers from Qatar, United Arab Emirates and Equatorial Guinea were in attendance.

“The key thing is that information is shared about our projections; it really helps everybody,” Gabriel Mbaga Obiang Lima, Equatorial Guinea’s petroleum minister, told Reuters of the discussion at the dinner, which he attended.

“The important thing is to know how much they (shale) are investing and their projections because usually they have good statistics,” he said. “What we are doing is avoiding volatility.”

But ConocoPhillips (COP.N) CEO Ryan Lance, speaking Tuesday at the conference, said “We’ve just decided to embrace volatility. The growth in the U.S. is coming. It’ll probably consume most of the incremental demand. So OPEC is needed to show restraint in order to continue to balance that market.”

Lance was one of at least five executives from U.S. oil companies who declined invitations to attend, according to sources familiar at those companies, who did not want to be named.

But Dove said Barkindo’s speech at the dinner suggests an understanding of the shared challenge in meeting global demand.

“It’s the shale producers, it’s the OPEC producers, it’s the non-OPEC producers that are going to be needed to make sure we fill that demand as we go through the next many years,” Dove said.

“From that standpoint, I think shale has an important role to play, and I think that was acknowledged last night.”

Reporting by Ernest Schedyer and Ron Bousso; Writing by David Gaffen; Editing by Lisa Shumaker

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