May 13, 2022

48-Year-Old Falling Oil Production Growth Forecast Too Aggressive, Says Pioneer’s Sheffield

Projections for oil production growth from the Lower 48 this year are “far too high,” Pioneer Natural Resources Co. CEO Scott Sheffield said Thursday.

Pioneer, based in Irving, TX, is one of the largest producers in the Permian Basin, with operations focused on the Midland sub-basin.

As evidence, Sheffield pointed to comments from oil services CEOs, including Halliburton Co.’s Jeff Miller and Helmerich & Payne Inc.’s John Lindsay, who said drilling equipment was running low.

Fracking fleets “are virtually depleted,” particularly for high-tech equipment, Sheffield told analysts on a conference call to discuss first-quarter results. “Good quality rigs are pretty much sold out and you can still do new builds, but you’re going to pay significantly higher prices and you’re going to sign three-year type contracts.

“So I think in this world of returning capital to shareholders, I just don’t see that happening.”

In part because of equipment scarcity, production growth forecasts from the Energy Information Administration (EIA) and other prognosticators are “too aggressive over the next two years for U.S. oil production. “, Sheffield said.

The EIA, in its latest short-term energy outlook, projected that US oil production would increase by 800,000 bpd per year in 2022 to average 12 million bpd, and an additional 900,000 bpd in 2023.

Pioneer, for its part, produced 637,756 boe/d in the first quarter, including 355,270 b/d of oil, 152,929 b/d of natural gas liquids (NGL) and 777 MMcf/d of natural gas.

These figures compare to 473,937 boe/d, 281,017 b/d, 105,675 b/d and 523.5 MMcf/d, respectively, for the period a year ago.

Flat production, longer laterals

Pioneer is sticking to its plans to cap annual production growth at 0-5% for the foreseeable future.

The company forecasts average production in 2022 of 623,000 to 648,000 boe/d, including 350,000 to 365,000 boe/d of oil, which would be essentially flat with current levels.

Sheffield said it does not expect natural gas delivery constraints to be an issue in the coming months, citing recent announcements of planned capacity expansions.

Pioneer has set a projected capital budget of $3.3 billion to $3.6 billion for this year, funded entirely by operating cash flow.

The company plans to operate an average of 22 to 24 horizontal drilling rigs in the Permian Midland this year and bring 475 to 505 wells into production.

Pioneer forecasts an average drilled lateral length of 10,500 feet/well in 2022, which would represent a 4% increase from 2021. The increase includes adding approximately 50 wells with 15,000 foot laterals to the program 2022, management said.

By 2023, that number is expected to double to around 100 wells and to “100 to 150 in future programs,” chief financial officer Richard Dealy told analysts on the call. He estimated that 20-25% of Pioneer’s drill program “will likely be these longer diversions for the next foreseeable five to seven years.”

The company also highlighted increases in its feet completed per day for its simultaneous fracturing (simul-frac) and zipper fleets. Pioneer’s feet completed per day increased more than 20% in 2021 compared to 2020, “with further increases expected in 2022,” management said.

“Drilling longer laterals, reducing drilling days per well and achieving more feet per day, among other operational efficiencies, continue to improve capital efficiency and help ease pressures cost inflation experienced by the industry,” management said.

Dealy said Pioneer expects to feel the impacts of cost inflation more acutely this year in its purchases of steel, diesel fuel, drilling chemicals and, to a much lesser extent, sand. of fracturing. The CFO estimated that approximately 60% of Pioneer’s costs are locked in for the 2022 capital program, with the remainder subject to further inflation.

Profits are skyrocketing

Pioneer reported net income of $2 billion ($8.25/share) for the first quarter, compared with a net loss of $70 million (minus 33 cents) in the same period a year ago.

The company brought 138 horizontal wells into production in the first three months of 2022.

Management noted that Pioneer’s contracted frac sand supply was interrupted by a third-party sand mine shutdown during the first quarter, which impacted second quarter planned production.

Pioneer temporarily added an additional frac fleet during the second quarter to mitigate the impact on full-year production.

The company reached average realized prices for oil, NGLs and natural gas of $94.60/bbl, $41.37/bbl and $4.81/Mcf, respectively, from $56.71, 25, $90 and $3.04 a year ago.