Continental Exec: EIA Projections Impacting WTI Prices
WATCH: Blu Hulsey, Continental Resources, discusses EIA's U.S. production forecast and its effects on oil prices. He also discusses alternative fuels and the relationship between the industry and government policy with Hart Energy at DUG Midcontinent in Oklahoma City.
OKLAHOMA CITY—Over-projections of U.S. crude production by the U.S. Energy Information Administration (EIA) is a factor in continued depressed oil prices, according to a senior executive for Oklahoma City-based Continental Resources Inc. (NYSE: CLR).
Speaking at Hart Energy’s recent DUG Midcontinent Conference & Exhibition, Blu Hulsey, the company’s senior vice president, government and regulatory affairs, said the EIA is over-projecting U.S. production by 400,000 barrels per day (bbl/d) this year. Hulsey said such over-projections have factored into what Continental believes is an impact on the price of WTI, lately by as much as $6/bbl.
“We believe there is an absolute price impact for their over-projection on what EIA is doing,” Hulsey said.
In its August Short-term Energy Outlook, the EIA estimated the U.S. year-end production at 9.82 MMbbl/d, but readjusted that estimate to 9.69 MMbbl/d for its September report. However, Hulsey said the Domestic Energy Producer’s Alliance (DEPA), a consortium of 25 coalition associations and of which Continental Resources is a member, estimates what it believes to be a more accurate estimate of 9.35 MMbbl/d U.S. production by the end of the year.
“That 9.8 [million barrels per day] was just a dramatic jump at the end of the year production forecast,” Hulsey said. “We don’t believe we’re going to get there. We do have some production increase at the end of the year. We’re around a 9.3 [million barrels per day] exit rate—that’s a 400,000 barrels per day difference. That’s a huge impact when it comes to WTI prices.”
Hulsey cited pricing differences this year between WTI and Brent as evidence of the pricing influence. In mid-July, Brent was price at $49/bbl, and WTI at $47/bbl. By Sept. 13, Brent had escalated to $55/bbl, while WTI remained stuck below the $50 mark at $49/bbl.
“You had a WTI and Brent spread where earlier in the year was at $2, which is pretty reasonable,” he said. “But it pushed up to $6, and it actually was $6 prior to the hurricane [Harvey]. We felt that was just not reasonable.”
Hulsey said he and Continental Resources CEO Harold Hamm met with the EIA earlier this year in Washington D.C. to discuss their concerns over the EIA’s projections, and its impact on oil prices.
“The EIA will tell you they are not here to move markets, [they] are not here to implement markets, [they] just tell you what they think,” Hulsey said. “We looked and found more than 200 analysts that quote EIA numbers. For somebody that doesn’t move markets, they sure as heck are quoted a lot in the markets.”
He said DEPA talked with nearly 40 domestic operators about their capex and production through the first half of the year, and of those, 13 companies planned to cut capex to a tune of $1.47 billion, three planned to increase production at a total of $263 million, and 25 reported no change through second-quarter 2017. Overall capex by those DEPA acquired information from was down $1.25 billion, or 1.2%. Total production through second-quarter 2017 for those which reported, Hulsey said, was down slightly by 139,485 boe/d.
“So, you don’t see that huge overall increase in capex that we would need to really ramp up that production,” Hulsey said.
According to Continental, U.S. crude oil production gains would have to double its current growth rate of 60,000 bbl/d to 120,000 bbl/d by the end of the year to meet EIA’s year-end production expectations.
Hulsey said that even with the large number of drilled but uncompleted wells possibly coming online, that production still wouldn’t meet EIA’s estimates.
“We believe there is no way you’re going to see a huge amount of completion increases in these plays you have at the current price,” he said. “We just haven’t seen that in the past, and in order to reach that 9.8 [million barrels per day] number, we’re really going to have to increase the overall completions in those plays. We just really don’t think that’s going to happen.”