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Pioneer CEO: Balance sheets in oil, gas industry 'worst that I've seen'

Balancesheets for producers in the oil and gas industry are worse than ever,Pioneer Natural ResourcesCo. CEO Scott Sheffield said at a D.C. think tank on July 19.

Sheffield,whose company is primarily focused in Texas, said the Permian Basin is one of ahandful of areas in the country that still allows for producers to make aprofit. Fortunately for Pioneer, he said, the company is positioned nicely inthe prolific play.

"In2011, we were told 'you have 10 billion barrels net under your acreage.' Itblew our mind," he said at the Center for Strategic and InternationalStudies. "Our biggest challenge is that we need $150 to $200 billion incapital to develop this resource over time."

Irving,Texas-based Pioneer's activity in the Permian has allowed it to remainprofitable, and Sheffield said his company has worked hard to avoid layoffsduring the downturn after having cut 40% of its workforce in a previousdownturn — something he said he vowed would not happen again. While Pioneer hasbeen able to avoid debt issues, its CEO said other companies have been crippledby debt after the oil and gas price collapse came on quickly.

Accordingto S&P Capital IQ data, Pioneer reported net debt of less than $1.2 billionat the end of the first quarter, and the company's market capitalization iscurrently about $26.15 billion. Peer Anadarko Petroleum Corp. has a market cap of about $27.49billion but reported more than $17.4 billion in net debt at the end of thefirst quarter.

"Interms of balance sheets of competitors, this is the worst that I've seen. Therehave been 85 bankruptcies, $62 billion worth in North America. That's justupstream," he said. "I don't have the service side, which is muchworse. The balance sheets are probably worse off than even in the early 1980s."

Thedebt issue, Sheffield said, extends beyond small and mid-sized independents.

"Eventhe majors [haveissues]," he said. "They've spent billions and billions of dollars onLNG projects around the world, and what's interesting is that pioneer now hasmore money on their balance sheets than most of the majors."

Theamount of debt in the industry, Sheffield said, has likely limited the amountof M&A activity that has taken place in the wake of the price collapse.

"Peoplewere taken by surprise. [Debt] is why there hasn't been a whole lot of M&Aactivity," he said. "There's just too much debt on the balance sheet."

Sheffieldsaid that approximately $33 billion worth of equity has been raised bycompanies over the past year and a half and remains on the sidelines, waitingto be utilized. The companies with the money, he said, are also largely in thePermian. "They have the best balance sheets in thecountry," he said.

Sheffieldsaid he believes oil prices will stay between $55 per barrel and $65/bbl onaverage for the next decade, but expects prices will crack $60/bbl in 2017.When that happens, however, it may take time for the industry to rebound.

"Theservice industry has been totally decimated," he said. "A lot ofpeople have left. I don't think a lot of people will come back when things getgoing again. We may be the swing producer, but it may be two or three yearsbefore we become the swing producer."

SNL Energy and S&PCapital IQ are offerings of S&P Global Market Intelligence.