US oil producers have done their part to lower the supply of crude by cutting spending and pulling back operations, so other global producers now need to do their part, independent producer Continental Resources' executive chairman Harold Hamm told Argus.
US producers have cut production by some 30pc in recent months in the face too much supply, falling demand and lower prices. Some are taking higher cost, low output wells offline, while others are choking back wells to slowdown production. Top producing states like Texas are considering plans to curb output.
Other major operators, like Saudi Arabia and Russia, now need to cut their output, Hamm said.
"We have done what we need to do here, and they have to do what they need to do there as well," Hamm said.
Nymex WTI touched its lowest since February 2002 on 18 March, at just over $20/bl, after Saudi Arabia and Russia last month said they would increase their production. This came as government actions to contain the coronavirus outbreak caused fuel demand to collapse. President Donald Trump on 2 April said he expects and "hopes" Saudi Arabia and Russia will cut their oil output by 10mn-15mn bl, following discussions with the leaders of two Opec+ members.
Despite the slowdown in demand, Hamm said he expects economic activity and the follow-on recovery in oil demand to be "back up running" quickly as governments control the spread of the coronavirus. That is because there is nothing fundamentally wrong with the global economy, he said, unlike the financial crisis of 2008-09.
"As we flatten the curve on the pandemic, you will see activity start back up and eventually demand should come back to almost as it has been," Hamm said. "As we have seen in China, pretty soon everybody is back up running."
Given the expectations that the current disruption to demand and the global economy will be short-lived, Hamm also does not see the pullback in drilling plans and well shut-ins having a lasting impact on the US industry.
"Across the board, companies will shut down some production but is this going to be a huge issue? No," Hamm said. "We do not anticipate a lot of problems."
Hamm expects the fall in US output to happen at a much faster clip than during the previous price plunge in 2015-16 in part because of actions taken by US producers. This includes quickly idling rigs and many companies sharply lowering their spending plan, with Continental Resources making a 55pc cut.
Even so, Hamm said that it is important to ensure that the industry remains viable to revive operations once demand recovers and the market balances out later this year. US independent Whiting Petroleum has become one of the first medium-sized US independent producers to seek voluntary Chapter 11 protection. Consultancy Rystad Energy is predicting as many as 140 US upstream oil and natural gas producer bankruptcies this year if Nymex crude prices remain close to $20/bl, putting at risk some $70bn in corporate debt.
"The part we need to worry about is having a viable industry that can get going again in the third quarter or fourth quarter of this year," he said. "That is going to be a test."
