Worthwhile interviews with knowledgeable oil experts.
Above, Scott Sheffield owned Pioneer Natural Resources, the premier producer in the Permian basin region, which he recently sold to Exxon.
Ignore his sucking up to Donald Trump, and just listen to his assessment of the shale resource – which he believes has seen its peak in that area, at least at current prices in the mid 60s.
But Trump wants oil producers to increase production, AND drive prices into the 50s, even while tariffs are raising the prices of steel and aluminum that are a big part of oil production costs.
Below, Analyst Eric Nuttall was struck by Sheffield’s comments, and adds more.
Bottom line, ‘Drill baby Drill” is a toothless slogan. There is no shot for Trump to jawbone Oil producers to drill more at a loss.
“The mantra of Drill Baby Drill, the market generally buying into it, and believing that Trump can somehow force shale companies to drill at an oil price that is below their break-even right now. We need an oil price 10 dollars higher to get any modicum of growth.” – Eric Nuttall, Ninepoint Partners senior portfolio manager
The end of the boom is in sight for America’s fracking companies.
Less than 3½ years after the shale revolution made the U.S. the world’s largest oil producer, companies in the oil fields of Texas, New Mexico and North Dakota have tapped many of their best wells.
If the largest shale drillers kept their output roughly flat, as they have during the pandemic, many could continue drilling profitable wells for a decade or two, according to a Wall Street Journal review of inventory data and analyses. If they boosted production 30% a year—the pre-pandemic growth rate in the Permian Basin, the country’s biggest oil field—they would run out of prime drilling locations in just a few years.
Pioneer Natural Resources Co., the largest oil producer in the Permian Basin of West Texas and New Mexico, raised its oil production between 19% and 27% a year in shale’s peak years. Now, Pioneer is planning to increase output only 5% a year or lower, for the long term.
Scott Sheffield, chief executive of Pioneer, said the combination of investor pressure and limited well inventory means he cannot drill as he once did. “You just can’t keep growing 15% to 20% a year,” he said. “You’ll drill up your inventories. Even the good companies.”
While privately held oil producers have increased their output in the Permian this past year, Mr. Sheffield warned even the largest of those would drill through their inventory rapidly if they kept it up.
Mr. Sheffield said he expects U.S. oil production to grow around 2% to 3% a year, even if oil trades from $70 to $100 a barrel. U.S. oil prices settled at $88.26 a barrel Wednesday.
Oil producers are always trying to finesse each other with respect to production vs. pricing. Now they’re having to do it in a long term downward trend in demand.