Shale Leaders See US Reverting to Net Importer of Crude

The U.S. could return to being a net importer of crude oil from OPEC if the Biden administration enacts fracking bans, according to Scott Sheffield, CEO of shale giant Pioneer Natural Resources Co.

Sheffield made the assertion during the CERAWeek by IHS Markit virtual conference, claiming the U.S. could eventually import up to 70% of its crude oil from the Middle East should restrictions on pipeline development and a ban on fracking in the U.S. be imposed through federal mandates.

“We’ve reached in my opinion energy independence,” Sheffield said. “We’ve reached it now and we’re going back to the old ways where we’re importing 65%-70% of crude from OPEC if there is follow through on the [fracking] ban and not allowing anymore production.”

In January, the Biden administration enacted a 60-day suspension of new oil and gas leasing and drilling permits on federal lands and offshore water.

UPDATE:

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Ryan Lance, chairman and CEO of ConocoPhillips Co. who took part of a discussion with Sheffield on U.S. shale at CERAWeek on March 1, said he would “take the administration at their word” that it wouldn’t enact a larger fracking ban. Further, Lance believes any kind of ban would not be sustainable.

“If that’s not the case, [a ban] is going to have an impact on U.S. production longer term, which then flows to our energy security and our national security,” he said. “The shame of it all is that some of the lowest greenhouse-gas production in the world right now is right here in the United States.”

He suggested one of the best paths to meeting the Paris Agreement goals of a 1.5-degree limit to global warming was to produce low greenhouse-gas generating natural gas and export it to China and other parts of the Far East that would otherwise require the construction of coal-fired power plants.

In addition to addressing the possible impacts of public policy, Sheffield and Lance discussed the ongoing recovery of the North American shale industry, which has suffered a blow from a drastic drop in demand and price challenges largely due to the COVID-19 pandemic.

Although oil prices have recovered since last year, and the number of rigs continues a slow but steady rise, Sheffield said he sees very little growth potential long-term for U.S. production as operators pull back the reins on new developments.

“The Permian rig count is back to 200,” he said. “It peaked at 500 in 2014, and it peaked again at 500 in 2019 at about 500 rigs.”

Pioneer is currently operating 19 rigs, according to Sheffield, and the company is back up to its “all-time high of horizontals” following the acquisition of Parsley Energy, which closed in January. 

Still, Sheffield said Pioneer will have flat production growth this year, with 5% production growth planned for 2022.

“I see U.S. production staying flat this year at around 11 MMbbl/d with very little growth in the future,” he added.

Both Lance and Sheffield agreed that the future of shale development, particularly in the Permian Basin, would likely be largely contingent on the direction that supermajors Exxon Mobil Corp. and Chevron Corp. take, both of which have large acreage positions in the basin.

“The big swing factor is what do the Exxons and Chevrons do,” Sheffield said. “The question is what do the big majors do. They have retracted off their 1 MMbbl/d targets. Pioneer retracted off our 1 MMbbl/d target a couple of years ago. So, the big question now is how do Exxon Mobil and Chevron allocate capital to the Permian.”

ConocoPhillips also recently completed a large acquisition in January with its purchase of Concho Resources. The transaction, valued at $13.3 billion, made ConocoPhillips one of the largest shale producers in the U.S. with a combined global resource base of about 23 Bboe.

Lance said this new era of shale has pushed producers to focus more on capital allocation rather than continuous growth.

“I hope there is discipline in the system,” he said. “I think the worst that can happen right now is U.S. producers start growing rapidly again. We’re only allocating capital to those sources that have the lowest cost of supply. We’ll spend about $5.5 billion, $3 billion of that will go to our U.S. unconventionals. So, we’re still spending $1 billion in Alaska and $1 billion around the rest of the world. But it’s only directed at the resources that can deliver less than $40 cost of supply.”