HOUSTON—Although major shale operators have the capacity to expand growth largely and rapidly over the next few years, most are limiting themselves to single-digit growth, according to panelists at the CERAWeek by S&P Global conference on March 9.
“We’re not going to chase growth like we all did over the last 10 years. We’re going to limit our growth to 5% long-term,” said Scott Sheffield, CEO of Pioneer Natural Resources Co. “That keeps the cycle in check, it doesn’t put pressure on the entire service industry. Cost escalates indefinitely, and then we create too much supply, then we have a downturn.”
To survive the most recent market downturn during the pandemic, Sheffield said Pioneer made two “very accretive" acquisitions in the Midland Basin, first with the acquisition of Parsley Energy, then the acquisition of DoublePoint Energy. Both multibillion-dollar transactions closed in 2021.
“Size and scale was important,” Sheffield said on the two acquisitions. “Everything we focused on was continuous acreage. So now we’re up to about a million acres in the Midland Basin and the most dominant operator in the Midland Basin itself.”
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Fellow panelists, ConocoPhillips Co. and Chesapeake Energy Corp., also made sizable strategic acquisitions during the pandemic. For example, ConocoPhillips quickly bolstered its position in the Permian Basin, first with the acquisition of Concho Resources in 2020 followed by the $9.5 billion cash purchase of Shell’s Permian business less than a year later.
Meanwhile, Chesapeake flipped the script on its story with acquisitions in the Haynesville (Vine Energy) and Marcellus (Chief Oil & Gas), which both helped to refocus its portfolio on shale gas after years spent trying to diversify into oil. Chespeake closed the Chief transaction on March 9.
Speaking together on the CERAWeek panel, Sheffield and Tim Leach, executive vice president of Lower 48 for ConocoPhillips, credited a “strong balance sheet” for granting their two companies the ability to make the acquisitions during the downturn.
“I would say that the transaction between Conoco and Concho together last year was all about building a new, different and better company,” added Leach, who previously served as CEO of Concho Resources.
“And then the Shell acquisition came along, and we had the balance sheet where we could write a $10 billion check,” he continued. “The Shell assets are some of the best rock in the world, so we were very happy to be able to pick that up.”
While energy demand is at a high, the scarcity of oil demand in 2020 led operators to be cautious about drilling plans for the future. Now, with supply and demand relatively evenly matched, shale producers remain uninterested in scaling growth up further than necessary and creating an oversupply of product, according to Nick Dell’Osso, president and CEO of Chesapeake Energy.
“What we saw throughout 2021 is prices were rising, is that we know our industry is still relatively closely matched on the supply-demand, and so we don’t really see that there's call for significant incremental supply,” Dell’Osso said. “You do see volatility in price around the way it's traded due to short-term differences—short pigeonholes, for example. But overall, the level of gas that we produce today quite well meets supply.”
“[Oil and gas supply and demand] will continue to go and arrange as commodities do,” he added, “but we have yet to see a real structural change.”
The panelists all agreed that though each company is taking steps to operate more sustainably, they don’t see oil and gas leaving the market in the near-term future. Instead, they said shareholders and investors are flocking back to the sector, ready to be part of the next chapter of oil and gas.
“There’s an increasing interest in coming back into our industry as the industry becomes profitable again, and very profitable at that,” Dell’Osso said. “We’re also attracting income-oriented investors that we would never attract before. So there’s a real shift in who the investors in the industry are, and there’s some excitement around it.”
2022-12-05 - Former Continental Airlines CEO Larry W. Kellner and former Raytheon International CEO John D. Harris II are slated to join Exxon Mobil's board of directors.
2022-10-25 - Hart Energy announces the next class of Oil and Gas Investor’s “Forty Under 40” recognition program—champions of the next generation of oil and gas professionals.
2022-11-28 - Today's featured Forty Under 40 honoree is Amber Barlow Garcia, who is a partner at Deutsch Kerrigan LLP in New Orleans.
2022-12-08 - Today's featured Forty Under 40 honoree is Brandon Lakatta, Pioneer Natural Resources' vice president of land based in Irving, Texas.
2022-12-08 - This year’s honorees represent companies such as Antero Resources, Continental Resources, Deloitte, Exxon Mobil, Equinor, KPMG, SLB and Tailwater Capital.