As oil prices continued sliding to a six-year low, the president of energy giant Hess Corp. warned Thursday that energy companies will need to pool resources and knowledge in order to survive the latest boom-or-bust cycle.
“It’s clear that there’s a lot of uncertainty in our business in this short-term cycle,” Gregory Hill, Hess’ president and chief operating officer, told the Louisiana Mid-Continent Oil and Gas Association’s annual meeting at the Roosevelt Hotel in New Orleans. “Given that uncertainty, it’s absolutely critical that we work together.”
Throughout a half-hour presentation, Hill described the global oil glut — which has driven prices down by about 60 percent in six months — as another challenge faced by an industry that has dealt with plenty of challenges before.
Hill said the Obama administration’s decision this week to potentially offer areas along the Atlantic Coast for drilling over the coming decade was encouraging but not far-reaching enough.
“We need to do more than what’s being proposed,” he said.
Hill also urged the federal government to repeal the decades-old ban on exporting crude oil, echoing the position of lobbying outfits like the American Petroleum Institute, which plans to push heavily this year to get the ban overturned.
“Let’s allow our products to be sold on the international marketplace,” he said.
In the meantime, $50-a-barrel oil prices may be a new reality that requires some adjustment. “This business has proven time and time again that it can overcome almost any challenge,” he said.
Amid the uncertainty, Hill said, some oil-field service firms will feel the effects of low prices, in addition to the oil and gas exploration companies.
Energy companies will have to find new, innovative ways to compete and operate more efficiently until oil prices rebound, he said.
He said Hess has adopted a process called lean manufacturing to study its work flow. By using systematic analysis, the company has found ways to cut costs and waste.
In turn, Hess has trimmed its drilling expenses in the Bakken shale formation in North Dakota by nearly half in the past three years, even as the wells have become more complex, he said.
“How long is this going to last? How low is it going to go? Many programs at many companies are going to have to be cut in the short term to be sure, and producers aren’t going to shoulder the whole burden,” Hill said.
Meanwhile, as domestic oil production has soared, U.S. refineries are converting crude to other fuels to sell abroad. If gas prices stay low for now, refineries along the Gulf Coast and elsewhere are increasingly busy exporting fuel products to meet global demand, which puts them in a “tremendous position, from a competitive standpoint,” Chris Chandler, general manager for natural gas liquids at Phillips 66, said in a presentation Thursday.
“Growth is occurring,” Chandler said. “Maybe the refineries aren’t being built fast enough (in other countries), and the U.S. refineries are playing a role in satisfying that demand.”
Follow Richard Thompson on Twitter, @rthompsonMSY.