HOUSTON This week, Saudi Oil Minister Ali Al-Naimi will for the first time face the victims of his decision to keep oil pumps flowing despite a global glut: U.S. shale oil producers struggling to survive the worst price crash in years.
While soaring U.S. shale output brought on by the hydraulic fracturing revolution contributed to oversupply, many blame the 70-percent price collapse in the past 20 months primarily on Naimi, seen as the oil market's most influential policymaker.
During his keynote on Tuesday at the annual IHS CERAWeek conference in Houston, Naimi will be addressing U.S. wildcatters and executives who are stuck in a zero sum game.
"OPEC, instead of cutting production, they increased production, and that's the predicament we're in right now," Bill Thomas, chief executive of EOG Resources Inc (EOG.N), one of the largest U.S. shale oil producers, told an industry conference last week, referring to 2015.
It will be Naimi's first public appearance in the United States since Saudi Arabia led the Organization of Petroleum Exporting Countries' shock decision in November 2014 to keep heavily pumping oil even though mounting oversupply was already sending prices into free-fall.
Naimi has said this was not an attempt to target any specific countries or companies, merely an effort to protect the kingdom's market share against fast-growing, higher-cost producers.
It just so happens that U.S. shale was the biggest new oil frontier in the world, with much higher costs than cheap Saudi crude that can be produced for a few dollars a barrel.
"I'd just like to hear it from him," said Alex Mills, president of the Texas Alliance of Energy Producers. "I think it should be something of concern to our leaders in Texas and in Washington," if in fact his aim is to push aside U.S. shale producers, Mills said.
Last week's surprise agreement by Saudi Arabia, Qatar, Russia and Venezuela to freeze oil output at January levels - near record highs - did not offer much solace and the global benchmark Brent crude LCOc1 ended the week lower at $33 a barrel and U.S. crude futures CLc1 ended unchanged at just below $30. <O/R>
Prices fell sharply on Tuesday after Iran, the main hurdle to any production control in its zeal to recapture market share lost to sanctions, welcomed the plan without commitment. Iraq was also non-committal.
Many U.S. industry executives understand that all is fair in love, war and the oil market, but "the Saudis have probably overplayed their hand," said Bruce Vincent, former president of Houston-based shale oil producer Swift Energy SFYWQ.PK, which filed for bankruptcy late last year.
A PAINFUL TIME
The fact that OPEC members are talking to each other offers a ray of hope, according to some industry figures, an indication that the kingdom's own fiscal pain could prompt it to change tact and lead efforts to reach a deal. On Tuesday, Standard & Poor's downgraded Saudi Arabia's credit rating.
"The pain is at a threshold right now. People are now willing to sit down and talk about possible remedies to that pain," Mills said.
Texas, where oil production has more than doubled over the past five years thanks to the Eagle Ford and Permian Basin fields, is feeling acute pain.
The state lost nearly 60,000 oil and gas jobs between November 2014 and November 2015, according to the Texas Alliance's most recent data. Only 236 rigs are still actively drilling wells in the state, down from more than 900 in late 2014, Baker Hughes data showed.
Financial distress among U.S. producers has deepened. More than 40 U.S. energy companies have declared bankruptcy since the start of 2015, with more looming as lenders are set to cut the value of companies' reserves, often used as collateral for credit.
Anadarko Petroleum Corp (APC.N) and rival ConocoPhillips (COP.N) both cut their dividends this month, unusual moves that showed financial stress.
THE TIGER HAS TEETH
The last time Naimi spoke at CERAWeek, seven years ago, OPEC was slashing output to lift prices that sank to $40 a barrel amid the global financial crisis, and he railed against speculators who he blamed for the price plunge.
Few oil executives anticipated Naimi's willingness to let prices collapse this time around.
Some of them, such as Harold Hamm, the chief executive of Oklahoma-based Continental Resources (CLR.N), even called his bluff.
Shortly before the November 2014 OPEC meeting, Hamm cashed in Continental's hedges, calling OPEC a "toothless tiger."
In an investor call in August, Hamm said he expected OPEC to begin cuts in September, adding, "we think that may be the first of many." Those have yet to come.
A Continental spokeswoman declined to comment on whether Hamm would attend Naimi's speech.
Continental shares have tumbled more than 60 percent during the downturn, cutting Hamm's personal fortune by more than $10 billion since 2014.
While producers may be more cautious now than before, some are still betting that OPEC will bail them out.
EOG's Thomas reckons prices will shoot up as high as $80 a barrel in the second of the year - in part, he says, because OPEC will eventually be forced to yield in the face of fiscal strains.
"The whole world is under stress," he said. "I don't care who you are. Even the Saudis are under stress."
(Reporting By Luc Cohen; Editing by Terry Wade and Marguerita Choy)