Energy Meeting Convenes Under Cloud

Saudi oil minister Ali al-Naimi will join top North American and European drillers in Houston this week to debate how long the oil bust could last and how geopolitics are reshaping the energy world.

Hundreds of oil-and-gas executives and world leaders are expected to gather for IHS CERAWeek, the annual confab in the world's energy capital, which routinely draws influential players across the sector.

But this year's event is taking place under a dark cloud as persistently low oil prices continue to exact a punishing toll on the industry.

Daniel Yergin, vice chairman of energy research at IHS, will moderate five days of events spanning discussions on oil, natural gas, renewable power and politics. He said executives are obsessed with two big questions: how to stay competitive in a low oil-price world and how fast U.S. crude production will decline.

"That's what people really want to hear," Mr. Yergin said. "It's a day of reckoning now."

The capacity of U.S. shale producers to pump ever more oil helped create a global glut of crude that has pressured prices from more than $100 a barrel in the summer of 2014 to around $30 today.

Mr. al-Naimi's presence lends a particular gravity to this year's conference, because he hasn't attended since 2009—when the world was in the midst of a global recession—and oil markets tend to react strongly when he speaks.

The powerful oil minister of Saudi Arabia is credited with helping exacerbate the collapse in crude prices. The kingdom has refused to curb its oil output for more than a year, though in recent days Mr. al-Naimi has signaled a willingness to coordinate with Russia and other countries to freeze oil production at current levels.

The turmoil roiling the oil world has left hundreds of oil and gas producers world-wide at risk of bankruptcy, even as they continue to slash budgets and lay off thousands of workers, sacrifices that have only accelerated in recent weeks.

More than 300,000 energy workers in oil patches around the globe have been let go in the past 20 months since crude prices first started to fall, according to the latest statistics from Graves & Co., a Houston-based consulting firm. The 70% drop in oil prices has brought new drilling nearly to a halt in some areas.

U.S. energy producers carved up their budgets last year, and they've been making even deeper cuts this year, according to company filings analyzed by The Wall Street Journal. More than two dozen companies have axed their capital spending by $25 billion so far this year, which is nearly half what they spent last year.

A critical issue for American oil drillers, Mr. Yergin said, is whether the steep spending cuts made in recent weeks will finally cause a significant decline in the volume of oil the U.S. pumps.

The latest federal estimates show American crude production remains stubbornly high, above 9 million barrels a day, up from about 5.5 million barrels a day in 2010.

If America stopped pumping so much crude, oil prices could begin to rebound—Mr. Yergin said prices in the $40-to-$50 range would be reasonable—despite percolating angst about a broader economic slowdown and lower fuel demand coming from China.

As in previous years, IHS CERAWeek is drawing a number of foreign leaders, including Enrique Peñ a Nieto, president of Mexico, which is in the middle of revamping its energy sector to allow more foreign investment. And despite the low price of fossil fuels, renewable energy is still on the agenda, thanks to momentum following the recent climate talks in Paris and recently renewed solar and wind subsidies in the U.S.

The chief executives of several major U.S. shale players, including Pioneer Natural Resources Co. and ConocoPhillips, are on the lineup to talk about American production, while others—including Continental Resources Co.—decided not to attend given the conference's hefty price tag and the depth of the oil bust.

David Hager, chief executive of Devon Energy Corp., which announced last week it would let go of 1,000 employees, is anchoring a panel about the future of American oil and gas. He recently told investors that the steep cuts, while painful, were necessary to survive.

"Our top priority in this environment is to protect the balance sheet," he said. "There are no sacred cows around here."

Write to Erin Ailworth at [e-mail]

(END) Dow Jones Newswires

February 21, 2016 19:55 ET (00:55 GMT)

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