Another Perspective | Russell T. Rudy Energy LLC
A recent article in “World Oil” featured remarks by Dan Eberhart, the CEO of Canary, LLC, the largest privately held oil field service company in the U. S. While his remarks do not necessarily reflect the current consensus in the industry, I think they are provocative and noteworthy.
Eberhart feels that a turning point has been reached; world oil prices have stabilized and the shale industry is on the threshold of recovery. He offers that oil prices have increased recently, rig counts are about to flatten out, and the number of horizontal oil rigs has already recovered. He sees these developments, and the fact that production rates appear to be peaking, as evidence of a broader recovery.
In Eberhart’s view, this all means that the U. S. shale industry is moving into the role of global ‘swing producer’, replacing OPEC in that capacity. As such, shale operators can deliver more crude to the market as prices increase, and cut back on production to stabilize prices when necessary. “The OPEC house of cards is unstable. OPEC nations are bickering among themselves as Saudi Arabia faces growing domestic insecurity and questions about its role as cartel leader.”
Last November the kingdom refused to cut production despite growing inventories and collapsing oil prices, purportedly in an effort to preserve market share. Eberhart contends that Saudi Arabia’s unstated intent was to knock out the U. S. shale industry. However, he goes on to say that “It didn’t work. Between 2007 and 2015 OPEC’s share actually declined from 37% to just 31%. Meanwhile, global demand for oil grew by 6.6 MMbpd over the same time period.”
Saudi Arabia continues to fight for market share by keeping OPEC production quotas. Conversely, other members of the cartel such as Iran, Iraq, Venezuela and Nigeria are all desperate to cut production in order to raise prices.
Eberhart concludes “The Saudi strategy is backfiring, hurting the economies of other important members of the OPEC alliance. On the other hand, the U. S. shale industry is here to stay. Our willingness to adapt to changing markets and prices has allowed us to grab the swing producer’s throne. No Saudi games will change that fact.”
To read the article in its entirety, please go to http://www.worldoil.com/news/2015/5/31/canary-ceo-predicts-shale-recovery-as-rig-count-stabilizes .
