Anadorko and Hess Foresee $60 Crude in 2017 And Resumption Of U.S. Activities

In a curious good news/bad news announcement, Anadarko Petroleum and Hess Corporation officials this week stated that $60 oil will be sufficient to accelerate production activity in the U.S.

This is a considerably brighter scenario than in May, when Tom Ward, co-founder of Chesapeake Energy, threw a wet towel on expectations of a shale comeback by stating that $75 is the price oil has to reach to trigger reinvestment.

The bad news, of course, is that current prices are nowhere near the $60 threshold: although oil steadied on Friday, after suffering three-month lows, Brent crude oil futures were down 21 cents at $42.49, and U.S. West Texas Intermediate settled up 46 cents, at $41.60 per barrel.

Slow global economic growth and high product inventories were blamed for both benchmarks entering bear territory, 20 percent below highs achieved earlier this year, and the 14 percent drop WTI made in July was the biggest monthly decline in a year.

Worse for hopeful Anadarko and Hess, Goldman Sachs in a note on Thursday said that due to little change in global supply and demand, oil will remain in the $45-$50 range until mid-2017.

Still, Al Walker, CEO of Anadarko, believes global demand drivers are strong enough to make his desired threshold become a reality in 2017: "A sustained $60/b oil price is likely to emerge as we move into 2017 [which] will provide the necessary cash margins and cash ... improvements to encourage us to accelerate activity."

Walker also foresees global demand growth at 1.2 million-1.4 million barrels per day per year through the rest of the decade, which he points out will help boost crude prices.

Greg Hill, COO for Hess, told S&P Global Platts that "When oil prices approach $60/b, we'll begin to ramp up activity, starting with the Bakken Shale," and he added that his company has reduced its drilling program to levels that cover cash flow and other obligations at the current low prices.

Hess also predicts resuming activities in the Gulf of Mexico and Utica Shale in Ohio.

Presumably, the two executives felt fortified by comments from Edward Morse, global head of commodity research for Citigroup, who told Bloomberg Surveillance on Thursday that not only will an anticipated drop of 1.3 million barrels per day of U.S. shale production lead to an inventory draw and a market rebalance, the level of prices "is bound to go back to the $70 range."