Shortage won’t push up oil prices: Exxon CEO

The world’s largest publicly listed oil company says ample production from U.S. shale regions will keep prices subdued for years to come, disagreeing with others in the industry who have warned of a looming shortage.

Rex Tillerson, chief executive at ExxonMobil Corp., presented an upbeat view of how technology will allow companies to pump more, preventing a price “blowout.” Falling costs in America’s shale fields will counteract OPEC’s renewed commitment to supply management and the long-term effect of underinvestment in exploration.

“I don’t necessarily have the view that we are setting ourselves up for some big collapse in supply within the next three, four, five years,” he told executives and officials at the annual Oil & Money conference.

Tillerson put himself at odds with officials, including Saudi Arabia’s Minister of Energy and Industry Khalid Al-Falih and rivals such as Patrick Pouyanne, head of French oil giant Total SA. The Organization of Petroleum Exporting Countries and the International Energy Agency have also warned the market could face a supply crunch after the industry deeply cut spending to weather a prolonged downturn.

In its World Energy Investment report last month, the IEA said oil companies have cut investment in new production 24 per cent this year, following a 25-per-cent reduction in 2015 because of low oil prices. Next year, they could cut spending for an unprecedented third year in a row, the Paris-based agency warned.

Exxon’s upbeat view may be reassuring for consumers, but presents problems for the company. Exxon excels at huge, capital-intensive and technically challenging projects that make sense when oil prices are significantly higher than US$60 a barrel. Like other behemoths, unless it can cut costs further, Exxon could be squeezed by nimbler U.S. shale producers.

Cheaper, faster fracking means tight oil remains viable, even at a relatively low price, Tillerson said. Large swaths of U.S. shale become economical at US$60 a barrel as costs fall and productivity increases, he said.

Other speakers echoed his views. ConocoPhillips CEO Ryan Lance estimates new wells are viable in the Permian, Eagle Ford and Bakken shale basins at just US$40 a barrel, he said Tuesday. Production in the Permian can grow by 300,000 barrels a day for the next 10 years “easy,” said Scott Sheffield, chief executive of Pioneer Natural Resources Co., which is adding five drill rigs in the basin.

“It’s difficult to see a big supply precipice out there,” Tillerson said. “It’s difficult to see a big price blowout.”

Despite persistent fears of bankruptcies in the U.S. oilpatch as banks cut lending to the energy industry, Tillerson said the current boom-and-bust cycle has “confirmed the viability of a very large resource base in North America,” adding shale would serve as “enormous spare capacity” to meet future demand.

The comments are likely to reinforce the emerging view at the Oil & Money conference, which every year gathers some of the leading industry voices, that oil prices will remain at around US$50 to US$60 a barrel for the next few years.