Market Insider

US shale drillers may be getting their swagger back

A worker prepares to lift drills by pulley in the Permian basin outside of Midland, Texas.
Brittany Sowacke | Bloomberg | Getty Images

The Trump presidency, promising less regulation and more drilling, arrives just at the right time for the oil industry.

For the first time in months, industry officials are hopeful that prices could stick above $50 per barrel, a level that would allow more U.S. drilling rigs to come on line.

Higher prices, along with President-elect Donald Trump's pledge to support the industry by rolling back regulations and weakening environmental rules, means relief for some hard-hit energy producers. The U.S. has slowly been adding oil rigs in recent months, but the count jumped by 21 to 498 last week, according to Baker Hughes. That is still well below the peak of 1,600 two years ago.

Energy industry CEOs and business leaders who gathered in New York City for the Platts Global Energy Awards Thursday were more optimistic than they've been in several years, though they say there are still unknowns. OPEC's recent agreement to cut production has helped boost prices, and that is a big factor.

"I think [in] 2017, the big question will be if the price recovery will hold and [if] that will bring some of the producers in the shale industry to increase production. Obviously there are a lot of expectations [of] the new administration but we have to see what [the change] actually means," said Martin Fraenkel, president of S&P Global Platts.

"I think [Trump will be] good for the Industry," said Gary Ross, executive chairman and head of Global Oil at research firm Pira Energy. "There are many positives on the supply side from the Trump presidency, and there's potential on the demand side. Backing away from global warming, backing away from fuel efficiency standards for new automobiles. Some of these new developments and a stronger economy are all going to lead to more demand."

Non-OPEC members 'will contribute'

Commodities tomorrow: Non-OPEC producers meet Saturday

Following last week's market-supporting OPEC decision to trim production by 1.2 million barrels a day, there are questions about what the non-OPEC players will do. Ahead of this weekend's non-OPEC producer meeting in Vienna many are confident that there will be coordination.

"I think they will meet Saturday, and I'm sure they will contribute. I don't want to say they must contribute, but it is very important that they contribute 600,000 barrels a day, because 1.2 million (from OPEC alone) will not have that much effect, but 1.8 (between OPEC and non-OPEC) will really have some effect on the market," said Former OPEC Secretary General Abdallah Salem el-Badri.

Meanwhile, the Saudis appear to be moving forward and upholding their end of the bargain, in advance of the announced cuts in January.

"The Saudis are cutting customer allocations. They sent out announcements to their customers … so they are cutting production, and I think you're going to see bigger cuts, slightly bigger cuts, in the United States than anywhere else," said Ross.

A number of industry officials and experts attending the conference agree oil prices could end up in the $60-70 range next year.

Harold Hamm, CEO of Continental Resources and candidate for the Secretary of Energy position in President-elect Trump's cabinet ,said he expects OPEC and non OPEC producers to cooperate on production cuts. That would be good for the consumer, but the industry has to be careful not to get too aggressive with drilling.

"The Saudis are targeting at $55-65. I think that's gonna be the biggest hold back, that price level…And we shouldn't drill everything that works…If we get oversupplied again you can look for another [corrective] situation. You shouldn't get too far out over your skis in case that should happens," Hamm said.