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TIN news:  US shale oil producers and OPEC can avoid another showdown after 2017, and there doesn’t need to be a further bruising battle for market share between oil producers, Harold Hamm, chairman and CEO of Continental Resources, said.
Producers in the US have emerged from two years of hard times in better shape than ever and are well positioned to begin ramping up production, said Hamm — who has said many times that the US is capable of more than doubling crude and condensates production from current levels to 20 million b/d.
But as US production begins to rise, Hamm said there are two keys to avoiding a new battle between the world’s big producers beyond 2017 — crude prices holding below $65/b for the longer term, and a natural tapering in OPEC production, as key cartel members like Saudi Arabia start to deal with their own maturing assets.
Crude prices below $65 should support the strong demand growth that has helped the oil market “catch up” to production over the past two years, and keep a lid on any new production growth from the US, said Hamm.
Regarding the second point, Hamm said Saudi Arabia will at some point soon need to deal with an inevitable decline of its massive Ghawar oil field, which is generally believed to produce around 4 million b/d of crude in its own right — almost half of total Saudi production, which S&P Global Platts estimated at 10.52 million b/d for November.
“Some day Ghawar is going to start to drop off,” said Hamm. “They’ve been pumping seawater into that field since the 1970s.” Saudi Aramco stimulates production from Ghawar by flooding the reservoir with water, a fairly common production enhancement technique in mature conventional oil fields.
SAUDI ARABIA “COULDN’T PUT SHALE PRODUCERS OUT OF BUSINESS”
Speaking at the Platts Global Energy Outlook Forum in New York, Hamm said Saudi Arabia had failed in what he described as its bid to shut down US shale production, and left US producers stronger for it. He believes Saudi Arabia will work hard to avoid another contest for market share after their own experience of the past two years.
“They [the Saudis] are the ones that sought to put us out of business, and they spent up a third of their reserve capital in the nation trying to do it,” said Hamm.
“They helped us. We gained so much efficiency in the US,” added Hamm, who estimates that Continental can now produce “twice the amount of oil for the same money” as it did in 2014.
Hamm said that if benchmark crude prices remain below $65, any recovery in US production in general is likely to be slow. This is reflected in Continental’s own investment plans. There is no plan to change the company’s current allocation of 19 rigs working across all its holdings in the US, including four rigs in the Bakken.
Hamm confirmed that the company’s strategy continues to focus on completion of drilled but uncompleted wells (DUCs), “harvesting” wells that were suspended just before producing, as the company told shareholders in a November 3 update.
“We began doing that before OPEC’s agreement, it made sense whether OPEC made a move or not,” said Hamm.
US SHALE PRODUCERS STRONGER THAN EVER
While Continental has no immediate plans to put more rigs to work, Hamm emphasized that it is in strong financial shape to weather any new pressure on prices going forward.
Continental’s effective rate of return on DUCs is 100%, since all of the cost of bringing wells to production has already been covered. Meanwhile, Hamm estimated that Continental’s rate of return on new wells is likely to be around 40% across most of its acreage, thanks to cost cuts, process improvements, and a focus on its most profitable acreage first.
Hamm said that at least 50% of the cost cuts and efficiency gains it has made since 2015 are likely to stick — particularly because the time taken to bring a new well to production has fallen to 10-12 days over that time, compared to a typical 17 days to drill a well at the end of 2014.
“And that’s all the way across the industry,” said Hamm. “Everybody cored up. At the core we’re looking at about 40% rate of return at $40-50/b oil. These are the best wells that I have ever drilled in my life.”
Hamm confirmed that he has no plans to join the administration of incoming US president Donald Trump — downplaying speculation that Hamm was at the top of Trump’s list to be the new energy secretary.
“It’s not under consideration. I’m very honored that somebody may speculate that. I’ve got a full time job at Continental and the future looks bright now.”

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