In an interview with S&P Global, Pioneer’s (NYSE:PXD) CEO said the past week brought about a “mindset change.” In speaking about the war in Ukraine, and ability for the shale patch to add barrels, he indicated, “if there’s a coordinated effort, we would definitely participate in that.” His comments come after his company guided to falling production in 2022.
CEO Sheffield has been a figurehead for industry of late, and in an interview on CNBC during Q4 he indicated that his company would not grow production more than 5%, regardless of the oil price environment. Peers followed suit, Exxon (NYSE:XOM), Chevron (NYSE:CVX), Conoco (NYSE:COP), Devon (NYSE:DVN) and Marathon (NYSE:MRO) all planned for flat or lower production in 2022. Several other producers released similar plans.
The pivot comes after nearly a decade of the sector burning cash to fund growth. The result has been historically low prices for consumers, but worst-in-class share price performance for the energy sector. The new “growth discipline” commitment has been well received by shareholders. Breaking that commitment would likely hit share prices, and perhaps Sheffield feels a coordinated effort from Washington would help management teams break the news to shareholders.
Both Sheffield and Devon (DVN) CEO Rick Muncrief have been vocal about the White House calling on OPEC to increase production of late, rather than calling on Houston. Though today’s call for a “coordinated effort” stands out. In the interview released Wednesday, Sheffield suggested the shale patch could grow volumes ~10% for three years, providing ~800kb/d – 1mb/d to the market annually.
In Europe, the European Commission is rumored to be preparing a windfall profit tax for energy producers. In the US, politicians have floated the prospect of a crude oil export ban. In an email to Senators following passage of a $2T stimulus, Congressmen Schumer wrote, “we eliminated a $3b bailout for big oil.” The $3b was intended to fill the US strategic petroleum reserve as oil prices went negative. Not everyone in the oil industry likely agrees with Washington politics; however, Washington holds meaningful policy influence over the economics of the sector. If producers prove unwilling to increase production in 2022, they could face additional policy challenges as midterms approach.
The oil patch is already short on resources. Crews, parts, steel, sand, and basically anything else that’s needed to grow production. Prices for everything are going up, even with production volumes flat. To the extent there is a coordinated effort to increase US oil supplies, it would be certain to drive volume and pricing for oilfield service names like Halliburton (NYSE:HAL).