US shale output growth could slow by as much as 50pc at the start of this year versus 2018 if producers continue to pull back activity in a volatile oil market, Continental Resources chief executive Harold Hamm said.
He added that while the forecast is a "wild guess," the state of oil prices and 2019 capital expenditure (capex) guidance that companies share in coming weeks will provide better direction.
The deceleration would be driven by the discipline onshore producers demonstrated last year to keep their spending within cash flows and refrain from taking on more debt. That is in part bowing to investor pressure to reduce costs and improve returns, Hamm said in an interview at the Argus Americas Crude Summit in Houston, Texas.
"Producers have become more disciplined in their approach to capex," he said. "Several years back growth was a huge consideration. That consideration has been much less. The peak consideration now has been — are you overspending cash flow. Are you living within cash flow?"
Hamm's views echo comments by oilfield service giants Schlumberger and Halliburton who flag a subdued spending outlook by North American producers amid an uncertain oil price outlook. Reflecting the deceleration, UK bank Barclays' annual survey of upstream investment expectations for 2019 points to a slowdown in North American onshore spending growth to around 9pc, down from an 18pc rise in 2018.
The fourth quarter saw wide swings in crude prices, which fell some 40pc from the highs for the year touched in mid-October of $76/bl for WTI.
"Production is a direct response of capex today with this industry," Hamm said. "The more money that you inject the more you are going to extract."
Hamm also said that while he does not expect every company to stop half of its rigs, drilling activity is going to be considerably less than what it was last year.
"Looks to me like anywhere between a 25-30pc cut in rig activity may occur," he said. "That would be pretty tremendous."
Speaking specifically about Continental Resources, Hamm said the company is in a different position than many peers because of its large low-cost production base.
"It is pretty easy to stay within cash flow and basically service all of our needs," he said.
Overall, $70/bl is a sweet spot at which "the machine keeps running, it does not get overheated," he said earlier, while addressing the conference. The wide price volatility in the fourth quarter saw a sharp cut in the rig count last week largely reflecting a slowdown in activity with a lag, he said. With weak prices, producers start to question the rationale behind developing their reserves at sub-economic prices and opt to wait for better prices wherever they can.
Despite expectations of a near-term slowdown in output growth, the industry's outlook remain bright given the supply demand fundamentals and the improvements in efficiency and the reduction in costs companies have been able to achieve. Looking ahead 10 years, Hamm said the industry could see an increase in its output by 50pc from current levels.
