March 18, 2015 3:53 pm
T. Boone Pickens says US shale industry must cut output
By Barney Jopson
T. Boone Pickens, the influential Texas oil billionaire, said the US shale industry has “overproduced” and must cut back to lift the crude price rather than waiting for Saudi Arabia to lower its output.
The legendary trader and corporate raider said US producers must adjust to the plunge in the crude price caused by a US oil glut and predicted that shale production would stop rising in May or June.
In an interview with the Financial Times, he dismissed complaints over Saudi Arabia’s refusal to trim its output, a decision aimed at squeezing high-cost US shale producers by keeping prices low.
“That’s the resources of Saudi and they can do what they want to with their resources . . . We’ll adjust to it. That’s just life. Why do we expect the Saudis to cut for us? We’re the ones that overproduced,” he said.
“The US has got to balance its market instead of the Saudis.”
US production reflects the decisions of individual companies that take no instructions from Washington.
Already this year many companies have slashed the number of new wells they are drilling or put a pause to the fracking that unlocks oil and gas from existing wells.
Mr Pickens, an industry maverick since the 1950s, predicted that more such cuts would help bring the crude price back up to $70 per barrel by December and said he had placed bets in the market to profit from such a rise.
His comments come days after the International Energy Agency said US oil supply “shows precious little sign of slowing down” despite the cuts in oilfield activity.
The price of internationally traded Brent crude oil plunged from $115 a barrel in June to almost $45 a barrel in January. Although prices have since rebounded, hovering at about $53 a barrel on Wednesday, the IEA predicts expanding US crude stocks could lead to renewed price falls.
Traders and oil market analysts continue to puzzle over whether Saudi Arabia will hold the line on its production indefinitely.
Mr Pickens, 86, runs an energy investment group in Dallas called BP Capital and was in Washington to promote his Pickens Plan, a blueprint for fostering US energy independence using shale oil and gas.
He said a few US shale companies would “drop out” as the crude slump extinguished profits and he acknowledged a tendency to “overkill” in the industry. “We make mistakes when prices are up. We drill too many wells.”
But he said American companies deserved praise for lifting US production over the past six years to 9.4m barrels per day — close to the all-time high in 1970.
“If you did not have the US oil today . . . do you know where you’d be? You’d be at $150 to $200 [per barrel] oil. The United States is the one that saved the world from a very, very high oil price. Do they get credit for it? Hell no. Give ‘em credit for it.”
The price drop has ignited debate on whether the US should loosen restrictions dating from the 1970s oil shock that ban the US from exporting most of its crude.
Despite his emphasis on energy independence, Mr Pickens said producers should be allowed to export to wherever they wanted. It would be fine for the US to continue importing some crude, he said, as long as it came from friendly countries such as Canada and Mexico.
“I don’t like Opec is my concern,” he said, referring to the cartel of oil producers’ including Saudi Arabia. “[With] Opec you’re actually getting money into the hands of the enemy.”
Additional reporting by Anjli Raval in London