The immediate future of U.S. shale remains bleak despite Saudi Arabia’s pledge to cut an additional 1 million bpd in production to prop up prices.
“I really don’t see much increase in the Permian Basin or the U.S. shale over the next several years,” Scott Sheffield said at an investor webcast this week, as quoted by Bloomberg.
“I never anticipate growing above 5% under any conditions,” Sheffield also said. “Even if oil went to $100 a barrel and the world was short of supply.” The shale major CEO explained this was because the service costs associated with adding more drilling rigs would undermine profit margins.
The news is disheartening as West Texas Intermediate breached $50 a barrel for the first time in almost a year after the largest OPEC oil producer announced its new, unilateral, production cutting plans. At WTI prices of $50 a barrel, more U.S. shale drillers can break even, so it would make sense that the higher price would motivate more drilling, if only so the drillers could continue paying their debts.
However, the oil demand situation remains precarious as the pandemic rages on, and vaccines are being administered a lot more slowly than hoped.
In this context, Pioneer’s Sheffield said he expected total U.S. oil production to remain flat this year, at around 11 million bpd. He also expects more companies to merge.
Pioneer was one of the big—and few—dealmakers of 2020, acquiring Parsley Energy for about $7.6 billion in an all-stock deal that also included Parsley’s debt. The Permian was the hottest spot for deals, with Conoco acquiring another Permian major, Concho Resources and Diamondback buying QEP Resources and Guidon Operating.
According to Sheffield, the Permian will remain a bright spot in the U.S. shale patch despite the flat production outlook. Two others, however, the Bakken in North Dakota and the Eagle Ford in Texas may have plateaued as regards production growth, he said.
By Irina Slav for Oilprice.com
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