A lack of investment in US oil and gas over the past half decade will likely contribute to higher prices worldwide, the leaders of three major US independents told the 23rd World Petroleum Congress in Houston.
Speaking during the US Industry Luncheon: US Shale Revolution: A Case Study In Innovation event, the executives said the desire to please investors by cutting capital expenditures has now left many US plays underdeveloped — but investors remain displeased due to weak returns.
If the global economy continues to rebound after the Covid-19 pandemic, they said, a supply shortfall now seems probable.
“It could be getting a scenario where we've invested about a trillion dollars less than we should have [over] the last six or seven years, that we're going to be entering a period of higher oil prices,” said Scott Sheffield, Chief Executive of Pioneer Natural Resources.
“It’s gonna go a lot higher.”
The concern for US producers is twofold: How do you lower prices while luring investors back into the oil and gas sector?
Sheffield said that he would prefer West Texas Intermediate crude prices to stay in the $70 to $80 per barrel range, but anticipated prices would be higher than that. Price spikes and rapid drops, he said, are not the formula to lure investors.
“We need stable prices to bring investors back. I had three (price) downturns in my first 30 years in the industry; I've had three in the last 11 years. We can’t continue to have a downturn every three or four years,” he said.
“That’s the reason for our poor returns and something had to change.”
Even with higher oil prices, the executives seemed hesitant to commit to adding capital to their budgets for 2022.
Diamondback Energy Chief Executive Travis Stice said if his company exceeds its free cash flow objectives, it would return revenue to its shareholders.
“We've now got the lowest break-even cost in the world. So we will still make money at something below $50 or $60 a barrel. So that's the way we think about it,” he said.
“What the future holds in terms of price levels is not in our hands.”
In order for the industry to be more efficient and competitive, the executives said that consolidation amongst US independents would have to continue.
There have been several instances of a “merger of equals” over the past couple of years, a trend that is seen as likely to continue.
“I think our industry needs to be consolidated... I think that getting the right assets in the right hands and the right companies (is important),” said Tim Leach, ConocoPhillips’ Executive Vice President for the Lower 48.
“To do everything correctly really takes the size and scale of a larger company.”
However, bringing stability to oil prices will take more than consolidation in the Permian basin.
Sheffield suggested a partnership with Opec. “I'm hoping that Opec and Opec+ and US shale are working together in regard to achieving stability in oil prices," he said.
"We need stable oil," he said. "If we do that, it’ll bring investors back into our space.”