Harold Hamm: ‘Drill, Baby, Drill’ Needs $80 Oil – Or as Stu says, “Drill baby Drill when fiscally responsible”

U.S. shale needs much higher oil prices than $50 per barrel, and even higher than the current WTI Crude price in the high $60s, for a “drill, baby, drill” boom, oil tycoon and Trump campaign donor Harold Hamm says.

American producers, especially those pumping crude outside the Tier 1 inventory in the best Permian locations, would need an oil price of around $80 per barrel to cover the cost of drilling wells.

“There are a lot of fields that are getting to the point that’s real tough to keep that cost of supply down,” Hamm told Bloomberg Television in an interview on the sidelines of the CERAWeek conference in Houston.

“When you get down to that $50 oil that you talked about, then you’re below the point where you’re going to ‘drill, baby, drill,’” the shale pioneer added.

Over the past few days, there has been a lot of talk of $50 oil and the shale industry.

The Trump Administration appeared to be pointing to $50 as a price that would be low enough for American energy prices to drop but still good enough for U.S. shale to prosper.

However, the industry and Wall Street banks beg to differ. They say that $50 oil is so low that it would see production curtailments as the average cash breakeven price, including dividends, is estimated at $50-$55 per barrel of oil.

And the industry is definitely not prepared to cut dividends after diligently working for a few years to boost shareholder returns and make U.S. oil stocks attractive again.

U.S. Secretary of Energy Chris Wright told the Financial Times last week that shale producers could increase production even if oil prices fell to $50 per barrel as the sector continues to innovate and boost efficiency gains.

However, the industry and Wall Street banks beg to differ. They say that $50 oil is so low that it would see production curtailments as the average cash breakeven price, including dividends, is estimated at $50-$55 per barrel of oil.

And the industry is definitely not prepared to cut dividends after diligently working for a few years to boost shareholder returns and make U.S. oil stocks attractive again.

U.S. Secretary of Energy Chris Wright told the Financial Times last week that shale producers could increase production even if oil prices fell to $50 per barrel as the sector continues to innovate and boost efficiency gains.

However, they are quietly concerned that oil prices at current levels are already on the verge of making money much more difficult.

Pioneer’s founder and industry veteran Sheffield has some advice for the U.S. oil firms.

“You’ve really got to hunker down,” Sheffield told a Bloomberg Television interview on last week.

Oil prices are likely to fall into the range of $50 to $60 per barrel, Sheffield says, noting that American producers will struggle at these prices.

The cash breakeven price, including dividends, is $50-$55 for U.S. oil companies, and “that $50 oil is not going to work,” Sheffield told CNBC.

Other industry executives, as well as investment banks, also believe that $65 oil and below would present challenges to U.S. shale to keep production steady, let alone “drill, baby, drill.”

Saad Rahim, chief economist at commodity trader Trafigura, told Bloomberg that “$60 feels too low for much of the industry to work.”

With WTI Crude at around $65, the U.S. shale industry would likely hold production flat and shut down 25 rigs, Citigroup analysts Scott Gruber wrote in a note last week carried by Bloomberg.

“A drop into the upper $50s likely results in a bigger psychological impact with the rig count potentially falling ~75 and production down” by more than 300,000 barrels a day (bpd), according to Gruber.

Shale costs will also go up with the U.S. import tariffs on steel and aluminum, executives including Hamm say.

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