Nissa Darbonne: Hi. Thank you for joining us. I'm Nissa Darbonne, Hart Energy's executive editor-at-large, visiting with Scott Sheffield. Scott was the founding CEO in 1997 of Pioneer Natural Resources and sold Pioneer just last year to Exxon Mobil [for $64.5 billion]. Scott, thank you so much for joining us.

Scott Sheffield: Thank you, Nissa. It's always a pleasure to be with you.

ND: I appreciate it. So currently you have a lawsuit in federal court against the Federal Trade Commission.

Those of you who may not recall or didn't catch up yet, as part of the FTC’s ruling that the Pioneer-Exxon Mobil merger could proceed, it specifically banned Scott from serving on the Exxon Mobil board. It was quite the—well, there's a term for that. I shouldn't say it here. Scott, what's the status of the case?

SS: Yeah. Thanks, Nissa. First of all, I guess when I found out what was happening, I was obviously totally shocked. I sort of feel like how [President] Trump felt over the last four years, being weaponized by the past administration, especially [by former FTC chairman Lina Kahn].

Within 30 days, I filed public comments, refuting all the allegations [made] last May. And then I started to take action and just recently filed a federal lawsuit in Fort Worth in federal court to remove and vacate the order.

The status of that lawsuit: It's ongoing. It takes time to go through that.

But at the same time, we have a new administration, we have a new FTC and the two FTC Republican commissioners were against the order [on] myself.

They were against the order [on Hess Corp. CEO] John Hess also.

And we're hoping with the third Republican coming on [to the FTC] here in the next 60 days, the FTC will be all Republican and there'll be hopefully a compromise between the federal court and the new FTC to vacate the order.

That's what I'm hoping happens.

ND: That would be the simplest solution.

And he mentioned John Hess. John Hess is a founding family member of Hess Corp. The FTC also ruled that the Chevron Corp.-Hess merger could proceed—once it does proceed—as long as John Hess doesn't serve on the Chevron board.

Quite remarkable. So there is a possibility that the FTC could just simply vacate the order?

SS: They could. Most people hadn't read the statements by the Republican commissioners when it came out, but [two of five commissioners] both voted against the order and both of them have said it was pretty much illegal.

It's a baseless and illegal order that was done.

The FTC had no right to even put out that order. They have no authority to put out that kind of order.

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Exclusive: Sheffield Says FTC Could Rescind His, John Hess’ Bans

ND: So Scott—for many years, even prior to 1997 while he was working for and then running [Pioneer predecessor] Parker & Parsley [which emerged as Pioneer in 1997 upon merging with Mesa Inc.—once again, you have the whole of industry kind of on your shoulders out there fighting the fight against abuse of power, if you will, by the Federal Trade Commission.

I'm sure a lot of industry members have thanked you for that.

SS: Yes, they have. And everybody's looking forward to the day that the order's vacated.

What happens with $50 oil?

ND: Thanks. And also too, the experience of roughly three, going into four, years now of stable oil prices. A few blips here and there, but it's been quite remarkable for the business to have this length of time of stability.

But OPEC is going to drop 2 million, a little more than 2 MMbbl into the market starting in April. Also too, there are the tariffs against Canada—on again, off again. I understand that [for] oil and gas, there was an exception. It was 10%, not 25%.

But that could have been “Oh, so like two minutes ago.” I'm not sure what it is at this very moment.

How do you foresee continued stability in oil markets or do you not see it?

SS: Yes, that's an excellent question. After going through six downturns during my 40-year career as CEO of Parker & Parsley and Pioneer, it's one of the most fascinating parts of your job: trying to predict future oil prices.

I think Saudi Arabia has done, like you said, the last three or four years have been a tremendous job of trying to manage the marketplace.

There's still too much supply in the world—like Kurdistan, Kazakhstan; they're all continuing to increase production.

U.S. shale is adding [200,000 bbl/d] to 300,000 bbl/d. Brazil and Canada continue to add production. You have Guyana and Suriname coming on—projects that continue to come on there.

And so it puts a lot of supply in the marketplace.

And then you look at the demand: China provided 50% of the demand over the last 20 years in the world's demand market.

And now demand is pretty much peaked in China. They're no longer that demand user of oil. And so we have to rely on India, Southeast Asia, maybe Africa.

So the big unknown is “What is demand going to do?” And all this leads, like you said, with Saudi making the announcement to add 2 MMbbl/d starting in April over 18 months.

And then you have the part of the Trump administration talking about $50 oil.

Most people don't realize that we are already at $50 oil, in my opinion. When you look at inflation-adjusted numbers going back 20 years, we're at $50 oil today.

So oil is cheap today.

At $50 oil, you're going to see several things happen if we move toward $50 oil. The cash breakeven for most independents and majors is $50 to $55 WTI. That means there's no free cash flow at $50 oil.

What's going to happen to the world's gas market?

I usually take oil price, divide by eight and that equals your world's LNG price. Just a good rule of thumb that's held for about 30 years.

That's a $6 LNG price [for the Japan Korea Marker] JKM and [Europe’s] TTF.

Fifty-dollar oil will help the consumer, but it will not help the world's energy producers at all.

It'll give OPEC more control—Saudi more control long-term.

It'll hurt the oil and gas industry. In the U.S. in 2015 and ’16, we averaged $50 oil. We lost several hundred thousand barrels a day of U.S. production.

So it doesn't look good at $50 oil for the oil and gas industry in this country.

I'm not sure we're going to get to $50, Nissa.

We may get to the high $50s; we may get to the low $60s.

The futures market has us going over the next two or three years to the low $60s, high $50s.

That could happen. But down to $50, I think it will not be helpful for this industry.

Dampening the animal spirits

ND: When you talk about $6 LNG and $50 oil, that's great for the consumer, but in the short term. The consumer more than pays for it in the long term because oil and gas production declines. Supply declines.

SS: Exactly, yeah. That's the fear.

In 40 years, every time we've had a down-cycle, we always follow with a big up-cycle. So the best way to $80 oil and $90 oil is $50 oil and $6 LNG for three or four or five years. It will lead to much higher prices.

ND: And I'm thinking summer gasoline, derived from oil, demand is always helpful. It isn't everything.

But if reports are correct that Americans are starting to feel like their stocks are down, they're looking at inflation, they're looking at the possibility of more inflation, that summer gasoline demand may not be what one would [typically] expect.

Do you have thoughts on that?

SS: Yeah, I agree with you. It won't be as robust. If people don't have disposable income, they won't travel. That's why the airline stocks are down big the last couple of days.

I mean, are people going to travel on the airlines? Are they going to travel in their cars?

If we're going into recession, I say, that's probably right. They won't. They'll stay at home.

So, it'll affect summer gasoline demand coming up.

ND: Really dampen the animal spirits, as John Keynes would describe it.

SS: Yes. I mean it sounds like over the next 12 [to] 18 months it may be tough.

I just hope there's a positive end in sight.

I believe in what the Trump administration is doing.

He has to do it quickly; he has two years to show some positive effects on what he's doing before the midterm elections.

Trump administration

ND: Well, I wanted to ask you about the current administration. And as I referenced earlier, a lot's been happening in just six, seven weeks into it.

What are your thoughts on what may unfold in these two years while he does have both the Senate and the House and what may happen after?

SS: Yeah, I think first of all, they have to get this [federal] budget approved. [The budget was approved by Congress on March 14 after the interview.] They have to get $4.5 trillion of the 2017 tax package extended.

Hopefully it's extended for life instead of going back every four or five or eight years.

I'm a firm believer in [new Energy Secretary and vice chair of the new National Energy Dominance Council (NEDC)] Chris Wright and [new Interior Secretary and NEDC chairman] Doug Burgum, both of them a firm believer in what they're doing.

They are the spokesmen for our industry.

But I think my main point is he has to see some positive effects in the next two years.

And also, I think some of the comments made [here at CERAWeek by S&P Global] yesterday by several industry leaders in our sector: A lot of these executive actions are meaningless unless they're made legislative.

So like this pause on LNG [that President Biden imposed in 2024], a Democrat can come back in four years and ban LNG exports. They could ban oil and gas exports.

So we need some of this to be permanent and done legislatively while [Republicans] have control over [Congress] the next two years.

ND: So with LNG, in particular, [it would be] to legislate that LNG should never be paused, right?

SS: Exactly. And it takes four to five years from the time you start [a new LNG export plant] permit to the time you bring it on.

So by the time a new project's approved, if approved this year, [for example] then it won't come on until the next administration. Who's going to be in the next administration. You just don't know.

ND: And four to five years is even a best-case scenario.

SS: That's right. Exactly.

New E&P prospects

ND: On future exploration, maybe let's just focus on the U.S. in particular. Advice to future U.S. explorers? What are your thoughts there?

SS: Yes. I've been talking to some smaller groups. I talked to a group recently at the Dallas Petroleum Club of young employees. A lot of them were Pioneer employees [who] did not go to work for Exxon [Mobil].

They went with small producers in the Dallas area—private producers.

I think the future is private producers. I think exploration needs to come back and there is still money out there to invest. It may not be publicly; it'll be privately from family offices.

And so I think the future is really the private independent in this country. And they're going to have to do a combination of buying assets, … continuing to drill some and probably some exploration too.

ND: In terms of U.S. exploration, there are really great results coming out of the Dean formation in the far northern Midland Basin.

There's new exploration and better definition of the Pearsall play out there in South Texas. There's the Utica oil window. It's really exciting times out in the industry.

Looking at this renewed exploration, I gather that, from your experience, there's still a lot more to be done in the U.S.

SS: Yes. I don't think you're going to find another Wolfcamp or another Spraberry or Bone Springs play with tens of billions of barrels. But all the plays you mentioned, the Pearsall play, Uinta play, all those plays—even the Barnett-Woodford is coming back in the Midland Basin and it's also in the Delaware.

All those plays are plays that public independents and privates need to go after.

And so there's a lot more opportunity out there.

And gas, I'm a firm believer, if it wasn't for the $50 oil scenario, … that natural gas was going to move up into this $4 to $6 range with LNG exports because we're going to need a lot of natural gas [for the] data centers being built. Natural gas is the best way to fuel them.

And we're going to add another 12 to 13 Bcf of LNG export capacity in the next two and three years by ’28.

And so with that, we need another, probably, 20 to 25 Bcf/d in natural gas.

I really thought we're going to move into this $4 to $6 natural gas price scenario and it's going to open up.

The natural gas companies have been penalized over the last 10 years. They have one good year, 2022, and then they end up drilling too much, adding too much gas.

But the last 10 years have been tough for the natural gas industry, not the oil side, but the natural gas industry is disconnected.

In my … 50-year career [in the E&P business], natural gas traded around 8:1 to 10:1. You take your oil price divided by 10 and that was your natural gas price.

The last 20 years it's traded around 15:1 to 25:1.

And so that's why I was disappointed when they started talking about $50 oil.

I think, hopefully, they'll move away from $50 oil and realize that it's not good for the industry long term.

But natural gas, I think there are a lot of prospects; we're very rich in this country for natural gas prospects.

Natural gas price stability

ND: So [gas] strip, remarkably, is roughly $5 now. I mean that's a huge turnaround from just, say, 10 weeks ago with strip at $5. And producers such as Expand [Energy] saying that … they've converted to this just-in-time turn-inline (TIL) sales kind of format—always having a kind of warehouse, if you will, of wells that are ready to just open the choke and hit that market price.

Is there a possibility for stabilization—just like among oil producers exercising more restraint in spending approaching the end of the 2010s and into this decade—[if] gas producers will kind of get with some sort of program towards price stability?

SS: Yeah, I know. That's a very good question. Going back on oil, we've had to deal with OPEC over the last 50 years and we've had to deal with [how] the U.S. shale oil industry went from zero [MMbbl/d] to 9.5 and 10 MMbbl/d in about a 10-, 12-year period. From nothing.

And then our industry on the oil side went into capital discipline, which has worked for the oil side of the industry.

Now, the gas industry; there is no OPEC in the gas industry.

They've talked about forming a [kind of] natural gas OPEC cartel.

Obviously the U.S. can't be part of that and every time all gas prices go up, the U.S. gas producer will add too much natural gas and then the price collapses.

So the two things I think that are different this time—for a while—is that we're adding new LNG export capacity. We're at 14 Bcf/d [the U.S. is] exporting.

Now we're adding another 12 Bcf/d. So we'll be up to 26 and 27 Bcf/d of export capacity by 2028.

[And] data centers: We're going to need somewhere between six and 10 Bcf/d for data centers built over the next, call it five to seven years.

So we're going to need roughly about 25 Bcf/d of natural gas production increase.

It's going to be interesting to see how the gas producer handles this environment.

That's a lot of gas.

So I think it's going to take a while, but hopefully they'll have capital discipline and they won't grow too fast.

They still have to deal with the Permian.

The Permian's still adding one to 1.5 Bcf/d [of associated] gas. Oil ratios are increasing in the Permian Basin. Even though we're only adding 200,000 bbl/d, we're still adding one to 1.5 Bcf/d per year of natural gas production.

So [gas producers have] to compete with that natural [associated gas] increase over the next several years.

So that'll provide some of it.

Eagle Ford will provide some of it. A little from the Bakken. But there's still this big gap of … dry-gas production we need.

And so they're going to have to be able to manage that and not cause the prices to crater again and get in this cycle like the oil producers did.

ND: Thank you, Scott. And what did I not think to ask that everyone should know?

SS: I think you covered everything, Nissa. I enjoyed it, enjoyed the questions. It's good to be with you again. Thank you very much.

ND: Thank you. And (to viewer:) Thank you for joining us. SS: will be speaking at the annual SUPER DUG Conference & Exhibition in May in Fort Worth.

Be sure to look in your inboxes for messaging about that and be there.

Scott, again, thank you for joining us and stay tuned here for more actionable energy intelligence.

SS: Thank you, Nissa.

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