The biggest players in energy are descending on Houston, TX this week for the annual CERAWeek energy conference hosted by IHS Markit which began on Monday. One event drawing significant attention was the dinner meeting on Monday night between some OPEC members and the CEOs of a few key American shale oil companies. The first such dinner took place last year at the same conference and OPEC has continued to keep in contact with those it sees as key players, including leaders in the shale industry and investors.
Although these meetings receive a great deal of attention from the press, market watchers should understand that under no circumstances would any American oil company ever enter into any agreement with OPEC. Even the pretense of holding discussions for any kind of joint activities would draw the attention of the U.S. Federal Trade Commission and the Department of Justice for a potential violation of anti-trust laws.
Though OPEC is partnering with non-OPEC oil producing countries like Russia and Kazakhstan, U.S. companies will not be a part of this. There have been a few times in the past when American oil companies were granted special immunity from anti-trust laws to cooperate with other oil companies, but only for matters vital to U.S. national security. There is no national security interest here for the United States.
If not to collude, what are OPEC and U.S. oil companies discussing with one another? The former CEO of EOG Resources (NYSE:EOG), Mark Papa, told the Wall Street Journal that he planned to tell Mohammed Barkindo, the Secretary General of OPEC, that the position of shale oil companies is not as good as some believe. He reportedly intended to say that, despite the common belief in the market, shale companies are not very capable of ramping of production and sustaining high levels of production. After the dinner, according to Bloomberg, he declined to comment on what was said.
The point of the meeting is not for OPEC and shale to reach a unified conclusion about the market, or even for shale oil producers to “educate” OPEC about their business. (The sophisticated leaders within OPEC are already quite educated on shale.) The point is merely to show the market that they are meeting, enhance speculation and surreptitiously glean an insight or two into the business strategies of other key players.
Remember, the CEOs of Chesapeake (NYSE:CHK), Hess (NYSE:HES), Pioneer Resources (NYSE:PXD), Occidental (NYSE:OXY), Centennial (NASDAQ:CDEV) and others will be just as interested in what their fellow shale CEOs tell OPEC as they are in what OPEC has to say. “Keep your friends close and your [competitors] closer.”
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