Pioneer Sees Oil Reaching $70 in 2018 as Global Glut Burns OffBy and
Permian producer holding off on hedging crude for 2018
COO Tim Dove sees oil service companies keeping costs low
Texas driller Pioneer Natural Resources Co. sees crude prices surging to $70 a barrel in a year’s time as the world finally burns through its surplus of oil and drilling in the Permian shale basin heats up.
Pioneer has locked in future sales through hedging contracts for about 85 percent of its oil and natural gas output next year, Chief Operating Officer Tim Dove said in an interview Tuesday in Pioneer’s Midland, Texas office. The company hasn’t hedged much for 2018, as it bets that prices have room to run beyond their jump in the past two weeks, he said.
“We haven’t done much hedging for just that reason," Dove said. “We think there’s a chance that ’18 can be better."
Crude prices have climbed to more than $50 a barrel since Nov. 30, after OPEC agreed to its first output cut in eight years and other major producers followed suit. While that’s raised fears that U.S. explorers will raise their own pumping and flood the market, Dove said Pioneer is sticking with its current plans to operate 17 drilling rigs in the Permian. The company expects to increase output by 15 percent a year through 2020.
Shale companies have survived more than two years of slumping prices in part by negotiating steep discounts with the contractors who drill their wells and provide other services in the field. Dove said he doesn’t expect that to change next year, even as activity picks up.
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“The service companies right now have a tremendous amount of idled equipment; all you have to do is drive down Interstate 20 here and you can see stacked rigs as far as the eye can see," he said. “The fact is, it’ll be a while before they have pricing power again."