Laying Down Markers For OPEC: Chevron, ExxonMobil -- March 5, 2019

Link here.

ExxonMobil and Chevron have sharply lifted their expectations for production in the Permian Basin, the heartland of the US shale boom, in the first half of the 2020s.

In a presentation to analysts this week, Exxon is revising up its projection of oil and gas production in the Permian region of Texas and New Mexico from 600,000 barrels equivalent a day to 1m in 2024, while Chevron has lifted its estimate from 650,000 b/d to 900,000 in 2023.

The revised projections demonstrate the two largest US energy groups’ confidence in the continued growth of the country’s oil and gas production.

Also, Bloomberg, an op-ed:  the headline is above; the op-ed begins with the data in the story above, and then goes on:

Apart from the spectacle of America’s two oil majors battling to be king of Texas, what’s striking about those targets is that they imply both companies will be relying on the Permian for roughly one of every four barrels they produce within the next five years. That is a most un-major-like level of concentration in one asset, especially one at home and not in some far-flung corner of the world. The supermajor rationale of get-together-and-go-forth, expounded in the megamergers of 20 years ago, isn’t dead exactly, but it’s no longer the guiding mantra.

The rationale was captured in Wirth’s comment that Chevron’s “risk is decreasing as our capital spending becomes more weighted towards smaller, shorter-cycle investments.” The vast majority of Chevron’s anticipated increase in production to 2023 will come from projects that are already sanctioned, and 60 percent of them will be in the Permian Basin. Roughly another 30 percent relates to other tight-oil reserves.

Wirth’s predecessor was dogged by years of big-ticket, delayed mega-projects that burned cash and hurt returns. In that way, Chevron exemplified a wider degradation in the majors’ reputation as stewards of capital. In addition, the specter of climate change and peak oil demand has, in effect, raised the risk premium on new long-term projects. Winning hearts and minds on Wall Street now involves keeping a tight rein on spending, having flexibility on drilling and production and paying out a bigger chunk of cash flow year in, year out.

For Chevron, shale — and Permian shale in particular —  is the key to that. The same goes for Exxon, even though it is playing catch up there, having had to buy its way into a big Permian position and lacking Chevron’s advantage in terms of low or no-royalty barrels.

Buzz words:

• smaller, shorter-cycle investments
• global warming
• peak oil demand
• risk premium on long-term projects

This is not necessarily good news for countries like Norway and Brazil that still depend on long-cycle, big-investment programs.

Meanwhile, over at Rigzone: same story, these data points:

• even at $35/bbl, Exxon expects Permian production to average more than a 10 percent return
• Exxon paid dearly to get into the Permian -- getting in late -- one wonders how well those who got in early will do
• ExxonMobil expects its Permian production to increase to more than one million boepd by 2024 -- that's only five years from now
• this would be a nearly 80 percent increase for Exxon, who has a resource base of 10 bilion boe in the Permian
• let's see, 10 billion / 1 million = 10,000 days or almost 30 years of production at that rate
• Chevron? to 900,000 bopd by year-end 2023 -- note CVX states their goal in bbls of crude oil; XOM states their goal in boepd
• look at this: Chevron bought into the Permian decades ago and 80% of its land position has zero-to-low royalty and minimal drilling commitments

Absolutely amazing.

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