His comments came as oil posted its biggest two-day loss in three decades to start the year this week. Brent futures were trading around $78 a barrel on the morning of Jan. 5.
Sheffield said future oil prices, often referred to as “the strip,” will likely stay in backwardation going forward, with current prices higher than future contracts.
“There is no liquidity in the market,” he said referring to later-dated oil contracts. “Banks aren’t hedging, there’s nobody using that product and hedging anymore. No airlines are hedging, so there is nothing to bring up the strip.”
He anticipated oil prices to find a base of around $90 a barrel, with an upside of around $150 a barrel.
Going forward, Sheffield predicted that oil output in the largest U.S. shale basin will eventually hit 7 MMbbl and plateau. He warned that the gas-to-oil ratio there will likely shift to under 50% oil over the next ten years, prompting the need for a new gas pipeline roughly every 18 months.
Only Chevron, Pioneer Natural Resources and ConocoPhillips have capacity to produce more than 1 MMboe/d in the Permian by 2030, Sheffield predicted.
At the same time, he said the rig count will likely stay relatively flat and potentially decrease amid surging prices for services and takeaway constraints. He pointed to day rates of roughly $38,000 for rigs operated by drilling contractor Patterson-UTI.
“Something has got to break,” he said.
REUTERS: STORY BY By Liz Hampton and Mrinalika Roy
ABOUT PIONEER RESOURCES:
In 1962, two West Texas oilmen with a dream, beat-up car and plenty of guts set out to form a company that would set itself apart from the scores of wildcatters who were looking to swoop in on the latest fly-by-night play.
Howard Parker and Joe Parsley shook hands and flipped a coin to determine whose name would come first in the fledgling company’s moniker. Parker won the toss, and Parker & Parsley was born.
The company became known for making smart decisions, conservative hedges and shrewd deals as it assembled acreage and drilling plays. While competitors sunk millions and billions into global operations, Parker & Parsley never abandoned its legacy wells in the Permian – a loyalty that continues today.
In 1997, Parker & Parsley merged with MESA Inc. to form Pioneer. At the time, MESA boasted heavy natural gas holdings, offshore drilling expertise and an attractive internal culture that paid specific attention to its employees. Those things helped sell Parker & Parsley executives on the merger.
The name changed to Pioneer Natural Resources, but components of the two founding companies endure. We continue to operate in the Permian Basin, and we remain steadfast in this belief: We are in a people business first, oil business second.