Continental Resources Vice President Kirk Kinnear
An Oil & Gas 360® exclusive interview with Kirk Kinnear, vice president of crude logistics and hedging at Continental Resources
Market volatility has crude oil prices making huge swings, both up and down, with markets reacting to even just a hint of production cuts with a 10% spike in the price of U.S. benchmark WTI crude oil. Many are predicting when prices will recover, and to what extent, with estimates landing across a wide spectrum.
“Our studies indicate that the length of the decline is a pretty good indicator to the length of the price recovery,” said Continental Resources (ticker: CLR, ContRes.com) Vice President of Crude Logistics and Hedging Kirk Kinnear. “Right now, we look to the summer of 2014 as the beginning of the decline, so you have at least 18 months if the price recovery started today before you see that reinvestment. It’s going to take a while.”
With more than three decades of experience in the oil and gas industry, Kinnear has seen more downturns than the one the industry faces today, and Kinnear says the key to surviving is to remember that the market is cyclical.
“The supply isn’t going to snap back right away, even when the price does improve,” said Kinnear. With investment leaving the sector, and many companies laying off their workforce, it will take time for the industry to spin back up into full gear, even when prices do finally recover.
DUCs not likely to as big a factor as some fear
One of the major concerns for a price recovery is that higher crude oil prices may prompt U.S. operators to begin completing their drilled uncompleted (DUC) wells as quickly as possible to generate revenue, thus holding back a price recovery with each wave of new production. This problem has been overstated though, said Kinnear.
“Each completion is going to be a decision by the operator, made on the economics of that particular well. Even in areas that don’t have pad drilling, you’ll see that these DUCs will just be part of regular operating procedures,” said Kinnear. “It’s not going to be as big a factor as one might think.”
“It take a lot of time and a lot of completion crews to [get that production back online]. It’s not like a light switch.”
The flashing lights say everything is not alright in OPEC
The current state of the market is often compared to the oil crash in 1986, but the global situation is significantly different now than it was 30 years ago. U.S production has remained much more resilient, and OPEC is not in the same position it was in the 1980s.
“OPEC’s fields are much more mature now than they were in 1986, and their spare capacity is at an all-time low now,” said Kinnear. “Economies are strong, there’s growth around the world. It’s slowing in some places, but it’s still there.”
“They’re drawing down on their reserves at a fairly rapid pace and they’ve already issued bonds, and there’s talk about an IPO of Saudi Aramco.” All of this should be “flashing lights that all is not well,” right now, said Kinnear. “It’s going to take a decision from the Saudis to change this failed strategy.”
Market is rebalancing
As investment leaves the oil and gas sector, production declines will not be as easily replaced, meaning supply and demand should balance as growing demand works off surpluses in storage. Kinnear also saw potential output from Iran being less of an issue than it has been made out to be.
“It’s very difficult to believe Iranian propaganda. We believe 300-400 MBOPD of production is possible by the end of the year,” not the 1 MMBOPD of added production Iran hopes to achieve.
“One of the bright spots right now is that we just saw record-high imports, and record-high automobile sales in China,” said Kinnear. “The consumer is alive and well in Asia as they shift from a more industrial to a more consumer driven society, and that has some bullish implications for gasoline demand.”
Producers light-tight oil in the U.S. also look to be in a good spot moving forward. “One of the strongest positive developments of lifting the crude export ban is that the U.S. is no long an island unto itself,” said Kinnear. “The market for light-sweet oil is still pretty tight,” who expects a divergence on prices between light-sweet and heavy crude grades favoring the lighter oil produced in the United States.
Kinnear offered advice to anyone looking to join the industry that was applicable to the sector as a whole: “If you really love and are passionate about this field, continue to follow the dream. But go in with your eyes open. It’s a cyclical business. There will be highs and there will be lows, but it will average out.”
