Houston — US crude oil production should remain relatively flat near 11 million b/d for years to come with any upticks in Permian Basin output coming at the expense of other shale basins, the CEO of Pioneer Natural Resources said Jan. 6 during a virtual Goldman Sachs energy conference.
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Pioneer, which is becoming the biggest pure-play Permian producer with its pending acquisition of Parsley Energy, will still keep growing its output slowly and incrementally and never at more than 5% per year, said CEO Scott Sheffield. But the industry will continue to consolidate and other basins will further contract, he said.
"I don't really see much increase in the Permian Basin or the US shale over the next several years," Sheffield said.
Whether the Permian grows at all will depend on the activity of the biggest players that now dominate the region -- ExxonMobil, Chevron, ConocoPhillips, Occidental Petroleum, Pioneer and a few others, he said, as well as whether BP and Shell decide to further invest in the West Texas and New Mexico region.
"The Permian could add 100,000 or 200,000 b/d per year, but the rest of the US is going to decline," Sheffield said, citing Oklahoma's SCOOP and STACK plays and the Niobrara-DJ Basin, among others.
"We don't need new pipelines. We overbuilt in the Permian and to the Gulf Coast," he said, citing enough pipe capacity in the ground to last at least another decade.
Permian production peaked at about 4.8 million b/d in early 2020 and fell to a low of nearly 4.1 million b/d this past summer. In January, the Permian is now estimated at about 4.2 million b/d, according to the US Energy Information Administration.
Total US crude production rose to 12.9 million b/d late in 2019 before falling to 10 million b/d in May. The EIA has US crude output back up to 11 million b/d at the beginning of 2021.
The Pioneer-Parsley deal is just part of a series of mergers and acquisitions that suddenly took hold in the summer and fall as crude prices began to stabilize during the ongoing coronavirus pandemic.
In a series of all-stock deals to consolidate the Permian, ConocoPhillips scooped up Permian pure play Concho Resources for $9.7 billion on Oct. 19 and, one day later, Midland Basin leader Pioneer snagged Parsley Energy for $4.5 billion in a more familial deal. Chevron had closed on its $5 billion acquisition of Noble Energy. In September, Devon Energy agreed to buy WPX Energy for $2.56 billion in a so-called merger of equals.
"I think the best companies have been picked off," Sheffield said. "There's two or three privates that are left."
The two largest private Permian producers are the Delaware Basin-focused Mewbourne Oil and the Midland pure play Endeavor Natural Resources. Although Endeavor was temporarily up for sale in 2018, Sheffield said owner Autry Stephens no longer wants to sell, despite Pioneer's interest in Endeavor's neighboring acreage.
What happens next largely depends on how companies such as ExxonMobil proceed, Sheffield said. ExxonMobil was the most active driller with nearly 60 rigs in operation near the beginning of 2020, but has since shrunk to fewer than a dozen.
"When is Exxon going to get very active again?" Sheffield asked. "You have to look at Chevron the same way."
Namedropping ConocoPhillips CEO Ryan Lance, Sheffield said, "What does Ryan do with the Concho assets?"
A lot will depend on the actions of the so-called OPEC+ group led by Saudi Arabia and Russia. Those nations don't want to lose market share any longer, Sheffield said, noting how only US crude output rose substantially for most of the shale boom.
He credited the Saudis for agreeing to take on further production cutbacks in order to keep overall OPEC+ output flat after January. But he joked that he wished the joint minsters would stop meeting every month and contributing to volatility.
And, he said, once more people have received coronavirus vaccines by the summer, he's optimistic crude demand will rebound, just more slowly than in the past.
"People are cooped up," he said. "They want to get out of their homes and travel."