Oil Producers Cast Aside Gloom as Rally Spurs Drilling Plans
(Bloomberg) -- Oil producers battered by the steepest market collapse in a generation are signaling for the first time that they believe the worst is behind them.
Carrizo Oil & Gas Inc., Devon Energy Corp. and Chesapeake Energy Corp. all lifted their full-year production outlooks this week. Shale explorer EOG Resources Inc. said on Tuesday it plans to increase drilling as soon as crude stabilizes around $65 a barrel, while Pioneer Natural Resources Co. has said it is preparing to deploy more rigs as soon as July.
The actions come amid a seven-week rally that’s boosted oil prices by 39 percent. They follow 10 months of dramatic cost- cutting and revamped drilling strategies that have created a new reality for some within the industry. As prices rapidly fell, a $60 price for oil looked like a death sentence. Now, with the cutbacks, it appears positively rosy.
“We didn’t think we’d be quite this good,” Stephen Chazen, Occidental Petroleum Corp.’s chief executive officer, said in an analyst call on Wednesday. The company expects to boost production as much as 14 percent this year, he said, compared to a previous forecast for 6.8 percent to 10 percent growth.
The danger, of course, is that a production surge by newly optimistic U.S. oil explorers will flood the market with excess crude and force prices back down to the $43 level seen in March, or worse.
While some analysts have speculated that a recovery would have an L-shape, settling at one lower price point by the end of the year, oil historian and economist Daniel Yergin has said he believes it will take a W-shape, with continued peaks and valleys as drillers rush out product in times of higher prices, then pull back when they drop.
“That means oil prices are going to be a lot more volatile,” Yergin, the vice chairman of IHS Inc., said last month in an interview. “The notion of a W captures the sense of it. There isn’t going to be a landing place for oil.”
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