OPEC+ Turns to Dallas Based Consultant for Capacity Review

(Bloomberg) -- OPEC+ set out its methodology for a sweeping review of how much members will be capable of pump in years ahead, turning to a consultant that once audited the reserves of Saudi Aramco.

The Organization of the Petroleum Exporting Countries and its partners launched the latest audit in May, in an effort to align output quotas more closely with members’ actual abilities. The updates would take effect in 2027. They will use Dallas-based DeGolyer and MacNaughton Corp. for the majority of the work.

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The question of “maximum sustainable capacity” is delicate one for the alliance, as some countries  — like the United Arab Emirates and Iraq — have expanded their production capacity, while others are struggling to stop theirs from declining.

It’s also an increasingly pressing one. Global oil markets are shifting into an oversupply that threatens further downward pressure on prices, and could compel OPEC+ to make new production cutbacks next year. More realistic quotas would make such curbs more credible.

READ: OPEC+ Nations Again Face Thorny Issue of How Much They Can Pump

DeGolyer and MacNaughton, a leading consultant on petroleum engineering, conducted the audit of Saudi Aramco’s vast oil reserves in 2019 while the the kingdom’s state-run giant prepared for its initial public offering.

While the consultant is set to review most of the OPEC+ coalition’s 22 members, an Indian firm will be selected for Russia and Venezuela, delegates said. Iran opted for the option of having the average of its production in August, September and October be used as its baseline, a delegate said.

The three countries — which are all subject to some form of western sanctions on their oil trade — had raised reservations on letting certain foreign firms scrutinize their respective energy industries, delegates said last week.

90 Days

Maximum sustainable capacity will be define as the output that can be achieved within 90 days and maintained for a year, one meeting attendee said.

The audit process has caused friction for the coalition in the past, with a review in 2023 ultimately causing OPEC nation Angola to leave the group, severing decades of membership.

For much of the 1990s and early 2000s, OPEC applied pro-rata changes to existing output targets. Over time, that to a similar problem to the one they face now — quotas no longer reflected the production capabilities of the group’s members.

By October 2006, the situation had become so bad that the ministers decided at a special consultative meeting held in Doha that new output targets would be based on secondary source estimates of actual production for the month just ended.

Progress on the assessment procedure was reached at one of four online meetings held by OPEC+ on Sunday. These included a ratification of their decision to pause further output increases during the first quarter after they rapidly restarted production this year.

--With assistance from Ben Bartenstein.

(Updates with detail throughout.)

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