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Highlights

Sheffield sees Permian oil output growth slowing next year

Pioneer facing no export constraints on Texas Gulf Coast

Washington — US oil production would sink back to 2008 levels of 5 million b/d under a fracking ban proposed by several leading Democratic presidential candidates, Scott Sheffield, CEO of Permian driller Pioneer Natural Resources, said Thursday.

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"It's a shock. I don't think they understand what will happen," Sheffield said during an interview with S&P Global Platts on the sidelines of an event at the Center for Strategic and International Studies in Washington.

"We're at 12.4 million b/d now, and the decline rate is about 80% in the first year of a typical horizontal well in the Permian Basin," he added. "So can you imagine if we shut all of the rigs down to zero, both in oil and gas?"

Sheffield said the US would need to import 7 million-8 million b/d of oil from the Middle East and would lose up to 10% in gross domestic product if the US drilling sector collapses.

"We'll be sending thousands of troops back to the Middle East again every time there's a skirmish," he said. "We'll lose hundreds of thousands of jobs."

Democratic presidential contenders Elizabeth Warren, Bernie Sanders and Kamala Harris have taken aim at US oil and gas producers as part of their plans to combat climate change.

However, analysts see any presidential fracking ban on private lands hitting legal challenges unless Democrats also take control of the Senate and hold their majority in the House of Representatives.

"On the first day as president, I will sign an executive order that puts a total moratorium on all new fossil fuel leases for drilling offshore and on public lands," Warren tweeted on September 6. "And I will ban fracking -- everywhere."

Rapidan Energy Group estimates US shale production would plunge by more than 3 million b/d within a year of implementing such a ban. It looked at a scenario of Congress passing legislation in summer 2021, with a ban taking effect January 1, 2022.

"Halting fracking would stop new growth instantly, and steep decline curves -- most new shale wells see 65-85% production declines in the first year, slowing to 15% after 5 years -- would drive production sharply lower," Rapidan said in a report to clients Wednesday.

"With the surge in new shale production over the past few years, the base of legacy production already in steep decline has also surged, amplifying and accelerating the impact of a ban," Rapidan added.

PERMIAN SLOWDOWN

While the Democrats' fracking ban is theoretical at this stage, Sheffield said Pioneer is confronting a very real slowdown in the Permian.

Permian oil production is on track to grow 1 million b/d this year before falling to 600,000-700,000 b/d in 2020, he said.

Sheffield still thinks Permian output will top out at 8 million b/d, but it will now take drillers eight or nine years to get there, compared with his earlier forecast of five to six years.

Permian producers are currently pumping 4.4 million b/d, or about 35% of total US oil output, according to US Energy Information Administration's latest estimates.

Platts forecasts Permian oil production growth of 895,000 b/d in 2019 and 975,000 b/d in 2020.

Sheffield sees no infrastructure constraints ahead for Permian exports, with about 3.5 million b/d in new pipeline capacity coming online through the end of 2021.

"I think that will take care of us for the next seven or eight years," he said.

Pioneer exports about 90% of its crude production, with 60% of that flowing to Asia and 40% to Europe, Sheffield said. He said those flows have not encountered any bottlenecks out of Corpus Christi or Seabrook.

"Most of the bottlenecks have been in the Houston Ship Channel," he said. "From what I understand, those bottlenecks are being solved as we speak."

-- Meghan Gordon, meghan.gordon@spglobal.com

-- Edited by Richard Rubin, newsdesk@spglobal.com