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Hamm vs. Powers: Bulls, Bears, Breakeven Prices, and U.S. Oil Output

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Widely divergent views were on display recently with Continental Resources’ CEO Harold Hamm promoting US crude oil exports, EIA Chief Adam Sieminski discussing recent oil market lessons and Author Bill Powers playing the pessimist.

A morning panel at the Financial Times’ Energy Strategies Summit held in New York City featured a discussion about the future of US shale resource development that ranged from optimism to pessimism and touched many points in between.

For his part, Hamm championed the economic benefits that could be unleashed by allowing US producers to export crude oil to overseas markets. He went so far as to say “you cannot develop the resource without exports.” US companies are pushing for export restrictions to be lifted so they can obtain international prices for crude oil. The spread between US benchmark WTI and international benchmark Brent crude oil prices is currently around $7 per barrel.

“I think the process has begun,” said Hamm, and added that he and the industry hopes US crude oil exports could be flowing by this time next year.

And as oil prices rebound from recent lows, talk of breakeven prices has once again emerged. When crude oil prices began plunging in late November last year, everyone was trying find the price at which US shale oil development no longer made economic sense based on prevailing oil prices.

The answer, of course, is it depends on numerous factors like how productive each well is and whether the well is located in the most productive portion of a given shale play. How much a company paid for acreage and the state of its balance sheet also factor into the equation. Companies can have thousands of wells in disparate locations that all have different economic profiles.

US Energy Information Administrator Adam Sieminski addressed the breakeven price issue and said we have learned a lot over the past three years. “We learned from this three-year experiment that $100 oil produces too much supply and $50 dollar oil does not produce enough.”

Bill Powers, Author of “Cold, Hungry and in the Dark: Exploding the Natural Gas Supply Myth,” played pessimist to Hamm’s optimism. Powers said the recent period of low interest rates allowed companies to access capital at low cost, which they plowed into drilling and ultimately flooded the market. He does not believe this will continue.

Powers postulated that LNG exports will be politically impossible in some US states. For example, the Sabine Pass and Cameron LNG projects in Louisiana will have the capacity to export more gas than the state produces.

Hamm suggested the only thing currently holding back major US gas production growth is a lack of market access. “We’ll be shipping a lot of gas,” he said once LNG plants come on stream. Powers expects the opposite and forecasts a dynamic market in which the US imports more LNG and exports more gas to Mexico via pipeline.

Referring to current US natural gas supply abundance and related downward price pressure, Hamm joked that the last thing the US needs is another natural gas find.

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Jared Anderson's picture

Thank Jared for the Post!

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