The world's unfazed oil kings could make crude bulls bolt. Exxon Mobil, Chevron and ConocoPhillips reported solid third-quarter earnings on Friday and remained optimistic despite a 25-per cent slide in oil prices since June. A big reason is that shale drilling is still profitable, even at current rates. But investment cuts in other projects probably won't hit production for a few years. A return to $100-a-barrel oil in 2015 looks unlikely.
Missing from the majors' latest results, of course, was this month's sharp fall in crude prices. All three producers, though, talked up plans for US shale. It's the main source for new supplies that could topple OPEC as the global price-setter for crude.
Conoco, the No 3 US producer, said it had a "multi-year" pipeline of shale projects that will turn a profit at current prices. Larger rival Chevron said it was making "steady progress" toward higher shale output. Industry leader Exxon told analysts that recent price drops wouldn't affect its fracking activities. The company also reported a year-on-year 38-per cent increase in production of oil and other liquids from some of its more profitable shale areas.
Independent frackers may soon feel squeezed, but the majors' bullish comments support the view that shale output won't falter until prices fall below $80 a barrel, about the current level. Production cuts may come in other areas, where capital outlays are already lower after a surge in recent years. Conoco, for instance, said weak prices prompted it to reduce projected 2015 spending below the previously announced $16 billion. The lower budgets won't affect production until after 2017, though, given how long it takes to get major oil projects up and running.
The full effect of low oil prices on producer bottom lines won't become apparent until next quarter's earnings reports. But the companies will probably continue to invest in profitable shale production, and drilling costs generally should fall as operators get more efficient in exploiting established fields. That means cheap crude is here to stay, at least for a while, making investors even more antsy.
