The ‘accidental CEO’ Mark Papa says even he underestimated the shale revolution, which will continue despite lower prices…“If you want to point to a success of private enterprise, and how the capitalist system works for the benefit of the total U.S. economy,” he says, “I can’t come up with a more glowing example.”
By JOSEPH RAGO | Dec. 5, 2014 6:33 p.m. ET | www.WSJ.com
On Wednesday, an OnCue Express in Oklahoma City became the first U.S. filling station since 2010 to sell regular gasoline for under $2 a gallon. The national average—hovering around $2.74 this week, also the lowest since 2010—is down 51 cents in a year and continues to fall, which Goldman Sachs pegs as equivalent to a $75 billion tax cut over the past six months. Consumers can thank Mark Papa, the oilman whose role in creating this income windfall remains, for the most part, unsung. The same goes for the many other benefits of the modern American energy boom.
Mr. Papa retired last July as CEO of EOG Resources, the drilling company that he made into the largest crude-oil producer in the lower 48 over his decade and a half as chief. “They were among the pioneers of the unconventional oil and gas revolution,” says the peerless energy historian Daniel Yergin —a company that advanced new frontiers in hydraulic fracturing and horizontal drilling, allowing producers to tap dense, hard-to-extract shale.
“I can’t think of any other single event that has caused such a positive economic benefit to the nation as a whole as shale oil and shale gas,” Mr. Papa says on a visit to New York this week from his home near Houston. “The fact that oil prices have collapsed as much as they have is directly attributable to the shale revolution.”
As Mr. Papa reads the global market, the price slump is the result of “a bit more production” that has made all the difference—an additional million or so barrels of new oil daily amid world-wide demand of about 92 million barrels a day. Some of that is “unanticipated supply coming out of places such as Libya,” he says, but the major driver is U.S. shale oil.
In 2012, Mr. Papa explains, the year-over-year growth of domestic shale oil was about a million barrels daily, and last year growth slowed to 800,000. “The general feeling was that we’ve had flush production and the easy stuff had been had, and as you got into the third year, it was becoming a little more difficult to achieve this tremendous boost in production.” About 700,000 barrels for 2014 was the consensus.
Instead, “to the surprise of most people,” Mr. Papa says, including himself, daily U.S. production growth this year surged to 1.2 million barrels on average. Now “the expectation is or was at $100 oil that the U.S. would continue to grow at a million barrels per day per year, per year, per year. People forecast, my gosh, we have more oil on the market than we thought, and next year we’re going to have an even bigger surplus of supply over demand, and the following year even more, and so perception became reality and all of sudden—boom.”
The U.S. crude-oil benchmark of West Texas Intermediate has tumbled by about $30 per barrel since June, after hanging out at $100 for three years. EOG’s crude production climbed by 40% in 2013.
Given that the company was “one of the first movers in shale-oil activity in the U.S., frankly I thought we had our finger on the pulse of what was going on in the industry,” Mr. Papa says. What happened is that “a step-change efficiency improvement” sneaked up this year as technology advanced and drillers found ways to make wells more productive and extract more oil from the same play.
To read more: http://www.wsj.com/articles/joseph-rago-the-oilman-to-thank-at-your-next-fill-up-1417822381
Photo Credit: Ken Fallen