Goldman conference wrap: Northern boss says ‘we’re at the bottom of the cycle’
The price of oil is set to rise significantly and producers’ marginal cost of supply will climb, too, the chief executive officer of Northern Oil and Gas Inc. told an industry gathering this week.
Speaking during a panel discussion at the Goldman Sachs Energy, CleanTech & Utilities Conference in Florida, Nick O’Grady said many of the private operators his team works with—Northern is the largest publicly traded non-operated company and owns more than 1 million gross acres in the Williston, Uinta, Permian, and Appalachian basins—are cutting back significantly on capital spending because the price of oil today is below levels at which they can maintain production.
O’Grady added that coupling that dynamic with the growing production maturity (and in some cases, declines) of several basins means the industry is getting to leaning on the old adage that “the cure for low prices is low prices.”
“This is a cyclical business and I believe strongly that we’re at the bottom of the cycle. And I don’t think the equity markets are prepared for that,” O’Grady said. “At the end of the day, 65% of every incremental barrel produced in the world for growth over the last 10 years has come from the United States. So you can crowd out those barrels but you still need the price to be at a level that keeps US production flat.”
Talking about the cost of new barrels of oil, O’Grady said he isn’t downplaying what Northern’s operating partners—which include Devon Energy Corp. and Coterra Inc., whose leaders were also on the Goldman panel—are able to accomplish via technology and other operating efficiencies when it comes to shale operations. But he added that he sees the cost of a marginal barrel of West Texas Intermediate to be $65-70 today and expects that number to rise going forward.
“At this point, we have been hitting these fields—like the Williston—for 15 years,” he said. “There is only a limited amount of white space, as they say.”
Devon dabbling in geothermal
During the same group discussion, Goldman analyst Neil Mehta asked Clay Gaspar, president and chief executive officer of Devon, what the Oklahoma City-based company might look like in a decade or more as the dynamics of various commodities and basins evolve. Gaspar said he’s willing to bet Devon “will look entirely different” by 2040 and talked about being prepared to take advantage of opportunities.
Part of that preparedness push is Devon’s $117 million investment last year in Houston-based Fervo Energy, which is developing advanced geothermal wells and has secured supply contracts with some big energy names. Gaspar noted that getting into geothermal “sounds very afield from what we do today” but then outlined how Devon can help add value to its investment as the energy sector looks to the long term.
We don’t market electrons today. But hey, we’re smart enough to figure out how to partner, how to close that gap.
- Clay Gaspar, Devon Energy
“When you think about it, it’s exceptionally good geology work and geophysics work. It’s ground-floor leasing of land. It’s drilling horizontal wells, completing horizontal wells and then building surface facilities,” Gaspar said of the blocking and tackling of Fervo’s work. “That kind of sounds familiar to what we do. Now, we don’t market electrons today. But hey, we’re smart enough to figure out how to partner, how to close that gap […] I think that really could be something that’s interesting when you look further out kind of into the next decade.”
Expand’s Dell’Osso talks Western Haynesville advantage
Executives of Expand Energy Corp., Oklahoma City, raised a few eyebrows last fall with the announcement that they had committed nearly $180 million to build a nearly 75,000-acre position in the Western Haynesville region. Nick Dell’Osso, the company’s president and chief executive officer, told Goldman attendees the move is part of the company’s view that the industry’s existing Haynesville operations won’t be able to meet expected demand growth.
Asked about the Western Haynesville being potentially more expensive to develop—Expand is drilling its first well there now—because some of its zones are hotter and deeper than others in the region, Dell’Osso said he’s counting on Expand’s experience elsewhere with such zones as well as its ability to bring newer tools and technologies to the table.
“There’s no question about it; it is higher-cost than some other areas,” Dell’Osso said. “But again, we have assets that are high-cost today and we’re able to drill those pretty attractively. In the NFZ [Northwest Louisiana], which is the higher-cost area on the Louisiana side, we sit at about $1,500 a foot for drill completion turn-in-line in aggregate. […] Our peers are significantly higher than that—20%, 25% higher than that in a lot of cases. We think we can replicate that kind of advantage in this asset as well.”
About the Author
Geert De Lombaerde
Senior Editor
A native of Belgium, Geert De Lombaerde has more than two decades of business journalism experience and writes about markets and economic trends for Endeavor Business Media publications Healthcare Innovation, IndustryWeek, FleetOwner, Oil & Gas Journal and T&D World. With a degree in journalism from the University of Missouri, he began his reporting career at the Business Courier in Cincinnati and later was managing editor and editor of the Nashville Business Journal. Most recently, he oversaw the online and print products of the Nashville Post and reported primarily on Middle Tennessee’s finance sector as well as many of its publicly traded companies.