Harold Hamm Vs The EIA -- December 2, 2017

From a post, November 17, 2017:

Harold Hamm says folks like me are inappropriately exuberant about the Bakken
EIA's optimist forecasts are depressing US oil prices

A top story, week 39:

Harold Hamm opines that the EIA is mis-forecasting US crude oil production growth for next year; WTI climbs to $52 before dropping back to $51 and change.

From a post, September 24, 2017:

I think this is most fascinating, Harold Hamm's thoughts on EIA projections. See this post for background. Today, Bloomberg posted a longer article following Hamm's comments.

Hamm is arguing that the EIA is overestimating US oil production growth this year. And that once the market recognizes the US forecasting error, Hamm says, crude prices could rise to $60 a barrel from $50 now.

Flashback, a contributor over at SeekingAlpha, January 14, 2017, a lively essay, to say the least.

So, it is fair to conclude that the EIA's crude production forecasts are unreliable and may be off more than 600,000 b/d in just 3 months. I believe that EIA forecasts will substantially underestimate "Lower-48" production for 2017 given:

1. the data from North Dakota,
2. CLR's guidance,
3. the intentions of "Cowboyistan" to complete DUCs,
4. how fast they can be completed and start producing oil,
5. crude futures prices in the mid-$50s by June 2017, and
6. oil producer hedges the highest in almost 10 years.

I need to have more data to provide a more accurate forecast than "substantial" for saying how much U.S. crude production will increase in 2017. But I will keep a close watch on this data because it may be enough to offset the OPEC cuts, especially if they are only 50% compliant.

Google Harold Hamm vs EIA for 171,000 "results."

Way wrong: https://www.businessinsider.com.au/saudi-arabia-pushed-us-shale-to-become-more-efficient-2016-12.

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From John Kemp, via Twitter:

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Related Links

EIA data: https://www.eia.gov/petroleum/production/

US shale oil production to surge: https://oilprice.com/Energy/Crude-Oil/US-Shale-To-Surge-After-OPEC-Extension.html

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Commentary

I've been off the internet for about 36 hours, and have really just come back "to the grid," as they say, in the last few hours, so I missed some twitter tweets and new stories.

A reader must have been following my posts about Harold Hamm's comments on EIA's forecasts (see notes and links above). I had similar thoughts about Harold Hamm "talking his book" but did not post what I really thought -- I did make some comments in e-mails to readers. Here are some thoughts from a reader on all of this.

The reader noted that monthly EIA reports showed a massive crude oil build in September, 2017. Most of that build-up was due to the Permian (Texas and New Mexico) but the Bakken also contributed.

See EIA link above.

The reader thought it was very eerie that OPEC made its announcement to extend production cuts the very same day that the EIA released US shale oil production figures. From oilprice.com, linked above:

"Meanwhile, before OPEC went before the cameras for its official press announcement, word came from the EIA that U.S. oil production surged in September, jumping by a massive 290,000 bpd from a month earlier, hitting 9.48 mb/d.

That figure seems to put to rest a lot of questions about the EIA overestimating U.S. oil production in its weekly surveys, which have consistently come in much higher than the more accurate monthly figures.

The production numbers for September go a long way toward backing up the notion that the U.S. shale industry shifted into expansion after prices jumped above $50 per barrel.

The data release on the same day that OPEC agreed to an extension was probably met with some unease by the cartel.

Several [OPEC] members have been wary of incentivizing a strong drilling response from the Texas shale fields, so the fact that we now know that production ramped up dramatically in September as prices rose should dampen OPEC’s enthusiasm. If the OPEC/non-OPEC coalition keeps 1.8 mb/d of supply off of the market for another year, there’s no doubt they will bring the market back into balance and potentially even overshoot and push things too far. WTI could bounce above $60, which could spark an even stronger drilling response from U.S. shale, potentially undermining OPEC’s objective."

From the reader:

Kind of put egg on faces of people like Harold Hamm who doubted EIA.

John Kemp even tweeted people need to apologize to EIA (screen shot above).

Issue was that the two-month old reports from EIA (like the NDIC Directors Cuts) are more reliable but were running way less than their weekly numbers (which are not data, are models). But in September, 2017, the real data caught up to the models. Looks like US is really growing strong!

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Commentary Continued

The data and discussion continue to confirm my thoughts that none of us really understand shale. Some understand is less than others. It's been a common theme on the blog.

Giving Harold Hamm the benefit of the doubt, playing devil's advocate, the only way I can reconcile Harold Hamm's forecasts and his comments on EIA forecasts is that he was talking longer term. But if he was talking the same time frame as the EIA, one wonders how "the face of the Bakken" got it so wrong.

Having said all that, all things being equal, it looks like WTI at $55 is an incredibly bullish sign for the US shale industry.

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Final Thoughts

From that oilprice.com article, the last two paragraphs:

When asked about the rapid comeback of U.S. shale, Al-Falih cited the dramatic decline from conventional and mature oil fields, a depletion rate that means each year the market needs several million barrels per day of fresh supply.

He said he doesn’t think “shale can carry the load,” meaning that even a robust response from U.S. shale will be soaked up by the market due to growing demand and depletion from mature fields.

Presumably, however, OPEC and Russia concluded that they had to continue with the cuts to avoid a selloff in prices. They cited the enormous progress in cutting inventories, but said there is more work to do. They expect that to happen by mid-2018 or so. But will U.S. shale spoil these plans?

I'm not sure what Al-Falih meant by "several million bbls of fresh supply," but unfettered, the Bakken can ramp up to 2 million bbls from its current 1 million bopd.

The Permian and the Eagle Ford can easily ramp up an additional two million bbls/day.

One plus two = three. Not sure if three is the same as "several" but it's a nice start. And we haven't even talked about the SCOOP/STACk and several other US shale plays.