Energy Prospectus

Pioneer CEO says U.S. oil output could drop 20% on shale retreat
By KEVIN CROWLEY AND ALIX STEEL on 3/16/2020

HOUSTON (Bloomberg) - America’s oil output could drop nearly 20% as shale drillers slash capital spending and reduce activity after the biggest crash in crude prices since 1991, according to one of the country’s biggest independent producers.

The U.S. may lose between 2 million and 2.5 million barrels a day by the end of 2021 if oil prices stay around current levels as companies go into “maintenance mode,” Pioneer Natural Resources Co. Chief Executive Officer Scott Sheffield said in an interview on Bloomberg TV. His forecast is similar to that of Oslo-based research firm Rystad Energy.

Most shale producers will be forced to cut as many as half of their drilling rigs by the end of this year, when current hedges expire, Sheffield said. He didn’t provide details of his own company’s plans, which he said he’ll announce in the coming days. Sheffield said he has no plans for layoffs after a major restructuring last year.

The oil-price collapse may end up wiping out enough companies and production globally that it could create a shortage of crude, leading to higher prices after 2022, Sheffield said.

“It’s going to be hard to ramp up production anywhere in the world, so we could have a two- or three-year super cycle between $60 and $100 oil at that point in time,” he said.

From Stifel

Pioneer Natural Resources Company (PXD, $59.72, Buy; Target $246.00)
Pioneer announces 45% budget reduction to protect its dividend and balance sheet - Derrick Whitfield

After the close, Pioneer announced a ~45% reduction from the original 2020 capital guidance at the midpoint, resulting in a new budget of ~$1.7-1.9 billion. At $35/bbl WTI, the company expects the capital plan to be fully funded from forecasted cash flows of ~$2.3 billion and to generate ~$500 million in free cash flow. Free cash flows are expected to be used to fund the quarterly dividend (3.7% annual yield) and protect the balance sheet. Pioneer plans to decrease its operated rig program from 22 rigs to 11 rigs within the next two months and full-year 2020 oil production to be similar to the company's 2019 Permian oil production average of 211 mbopd. The company also enhanced its derivative position to provide downside protection. Lastly, Pioneer will provide a detailed update to its guidance during Q120 earnings.

MY TAKE: It won't show up in the data until mid-April, but the active rig count is going to drop BIG. That will result in a drop in U.S. oil production starting in May or June, depending on how fast companies stop completing wells.