CERAWEEK: Oxy CEO sees strength in shale scale, capital discipline

US shale growth will come more slowly amid a more consolidated industry as stricter capital discipline continues to keep growth from speeding out of control, Occidental Petroleum CEO Vicki Hollub said March 2 at CERAWeek by IHS Markit.

US crude oil production fell from an all-time high of nearly 13 million b/d in late 2019 before plunging during the coronavirus pandemic and levelling out closer to 11 million b/d. However, investors were forcing producers to cut costs even before the pandemic after a rash of spending, dragging down drilling activity and industry employment since late 2018.

"Shale will not get back to where it was in the US," Hollub said. "I think that's going to aid in getting the market's supply-and-demand back into balance."

While global oil demand will largely recover, she said, a permanent shift toward a more remote workforce with less commuting will keep demand from growing as much as previously projected.

Hollub also staunchly defended Oxy's $38 billion acquisition of Anadarko Petroleum in 2019 that has faced criticism for both the price tag and the pre-pandemic timing. Oxy's market capitalization value is now just more than $26 billion -- one-third of its value versus mid-2018.

Oxy needed to grow its scale in the Permian and Colorado, she said, and the deal will continue to look better in retrospect amid rising, healthier crude oil prices.

"The recovery is looking really good to us," she said. "Things will be pretty good for us over the next couple of years."

Highlighting Oxy's acreage position, Hollub said, "In the shale, the only way to be profitable is to have a lot of scale."

Also essential are the best subsurface modeling efforts and the most efficient drilling and completions teams, she said.

"If you can do that, you can make shale profitable," Hollub said. "The profitability of shale is much more difficult than people ever realized."

Energy transition

Hollub emphasized both Oxy's present and future as a "carbon management company" and shale leader in carbon capture investments, including its industry-leading enhanced oil recovery efforts and its burgeoning investments in "direct air capture" plants to literally suck carbon dioxide out of the air near its oilfields.

"We should not be talking about eliminating fossil fuels," Hollub said. "What we really need to talk about is eliminating emissions."

Speaking at CERAWeek, John Kerry, President Joe Biden's special presidential envoy for climate, seemed to strike a similar tone as Biden takes a more aggressive approach toward combating climate change.

"I don't object to fossil fuels," Kerry said. "I object to the byproducts, namely carbon dioxide and methane."

Oxy said on Feb. 1 it made the first "carbon-neutral" major petroleum shipment when it sent 2 million barrels of crude to Reliance Industries in India from the US Gulf Coast.

"Our goal is to ultimately provide the world with net-zero carbon oil," Hollub said March 2.

The difference between "carbon neutral" and "net zero" is that carbon neutrality allows for carbon mitigation efforts around the world to offset the emissions caused during the lifecycle of crude, from the wellhead through fuel combustion. Net zero, on the other hand, means emission-free without such third-party mitigation.

Oxy said it expects to begin delivering net-zero oil from direct air capture to customers in 2024.