Pioneer CEO: US oil production could hit 14 million barrels/day

Scott Sheffield, chairman and CEO of Pioneer Natural Resources, speaks in Midland, Texas. (Tim Fischer\Reporter-Telegram)

DENVER — Technological improvements will allow energy companies to scrape more crude out of the ground and drive U.S. oil production higher, even as producers seek new overseas markets for the fossil fuels, executives said Wednesday.

Although government forecasters expect U.S. oil production to peak around 9.5 million barrels per day in 2016, Scott Sheffield, CEO of Irving, Texas-based Pioneer Natural Resources told an energy conference here the real pinnacle could be 14 million barrels daily.

“The only thing that can stop it is oil prices,” Sheffield said, warning that a price collapse for domestic West Texas Intermediate crude would cause “a tremendous turndown.”

Steven Mueller, CEO of Houston-based Southwestern Energy, a major gas producer, sees big potential as companies apply unconventional techniques to conventional basins and areas once written off as unworkable.

Mueller predicted that energy companies will return to some of those plays with “crummy rock” — a category he said included “all of Midland and West Texas” — and figure out how to make them economic. Mueller added that every conventional basin also has source rock that can be exploited through hydraulic fracturing, a post-drilling completion method that involves pumping sand, water and chemicals underground to pull oil and gas from rock pores.

“There are basins in the world that have never been produced that will produce,” he said.

The industry may not discover any more big elephant fields boasting 25 to 75 billions of barrels of oil, Sheffield said, but operators will continue to find new opportunities in conventional plays. And he noted the industry is pursuing new techniques for boosting the recovery rate at wells up from the 2 to 3 percent common today.

Mueller said it is a long-term project that could yield big gains decades from now.

“This is an area ripe for some huge increases,” Mueller said. “We’re going to learn fairly quickly…but this is a long-term thing we are working on. Two to three generations from now our grandchildren and their children will solve this problem.”

Boosting production is only one objective; many domestic producers also are looking to supply markets outside the U.S.

Pioneer won a coveted ruling from Commerce Department regulators in March confirming that the company could export an ultra-light hydrocarbon known as condensate coming out of Eagle Ford wells as long as it is first stabilized and processed in a distillation tower. Once processed through those facilities — which Sheffield said cost about $6.5 to $10 million apiece — the government considers the condensate to be a petroleum product, therefore unlimited by the 39-year-old ban on exporting raw crude.

“You can look at it as a minimum refinery,” Sheffield said, noting that Pioneer’s distillation process allows the company to pull off liquid petroleum gas. “We actually change the form of our condensate fairly significantly by running it through.”

The first cargo of that processed condensate just shipped from Galveston, Texas, and Pioneer said in an earnings call Tuesday that the company expects monthly cargoes through the end of the year.

“The benefit of that is that we’re getting significantly higher pricing as compared to refiners who are discounting any condensate…somewhere between $10 and $15 off WTI,” Sheffield said. “We’re taking the extra cash flow and reinvesting it back in the ground and drilling more wells.”

Other companies who hope to follow suit have asked the Commerce Department for similar rulings — but many view condensate export as just a move toward their ultimate goal: a complete lifting of the 1970s-era ban on selling most U.S. crude overseas.

Sheffield predicted an ongoing education campaign aimed at the Obama administration and lawmakers on Capitol Hill would yield a reversal, possibly by 2017.

Federal law already allows natural gas exports, but only one company holds every permit needed to export a liquefied form of the fuel: Houston-based Cheniere Energy Inc., which is building a facility in Sabine Pass, La. Two other proposed LNG export projects are right behind Cheniere, with conditional export licenses and Federal Energy Regulatory Commission approval of their construction plans:
Freeport LNG at Quintana Island, Texas, and Sempra LNG’s proposed project in Hackberry, La.

Partners in that $10 billion Louisiana project, known as Cameron LNG, approved a final investment decision Wednesday.

Another approval: Oregon LNG wins natural gas export license

Some gas export advocates say the regulatory process in Washington is moving too slowly, potentially jeopardizing U.S. companies’ chance to sell into Asian markets. But Southwestern’s Mueller said the process of building those multi-billion dollar export facilities and exporting LNG “will go slower than everybody thinks” even without regulatory delays.

But, he suggested, the real upside of U.S. gas production isn’t exports; it’s the potential to use the fossil fuel domestically both as a chemical feedstock that can be transformed into other products and an electricity source keeping refineries and factories humming.

“You’re seeing the world come to our doorstep because we’ve got cheap energy,” Mueller said.

What is it today?
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Currently US oil production is about 8.5 million barrels @day. Production this year and next is expected to go up 1 million barrels each year. The US Energy Information Agency (EIA) says currently that US oil production will peak out about 9.4 million Barrels@ day in 2015. However, energy estimates from the permian, eagle ford, bakken, gulf of mexico and an assortment of smaller plays already show that oil output in 2016-2020 will still increase by at least another 500k barrels@ day.

The significance of Pioneer’s CEO statement is that Pioneer is the biggest most successful driller in the Permian basin which is several orders of magnitude bigger than the bakken and eagle ford combined. Production in the eagle ford and bakken has been optimized. Production in permian basin is a long long way from being optimized. We have not really seen the kind of comparable production growth phase in the Permian basin that we have seen in the bakken and eagle ford and elsewhere.

When that growth phase hits the permian basin it should leave people pretty gobsmacked.

There will be a pretty big WOW factor.

However, the kind of production increases that the Permian basin can produce will also cause considerable downward pressure on the price of oil.... unless considerable and increasing worldwide demand can soak up the extra supply while falling supply elsewhere gives room for extra US oil.

Hard to say how things will shake out.

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