Later, 8:02 p.m. Central Time: over at Financial Times, "Big Oil" is becoming "Big Shale." Or as Art Berman would say, "big retirement party."
ExxonMobil and Chevron, the two largest US energy supermajors, both raised their guidance for the amount of oil they expect to squeeze out of the Permian Basin, the heartland of the US shale boom, over the next five years.
In the process they sent a signal to Opec countries that any hopes that the shale revolution might falter are grossly misplaced. v The scale of the revisions are hard to overstate, with “Big Oil” increasingly becoming “Big Shale”. Operators are bringing expertise and efficiency earned over decades in far-flung corners of the globe to an area previously dominated by wildcatters and domestically-focused US oil companies.
By 2024 Exxon and Chevron now expect to be pumping almost 2m barrels a day combined from the Permian, which straddles Texas and New Mexico. That is 60 per cent more than previously forecast.
The Permian as a whole will already produce about 4m b/d this year, meaning that this one region — if it were an Opec country — would be the third-largest producer in the cartel, behind only Saudi Arabia and Iraq.
For Opec this spells trouble. Members, including Saudi Arabia, have consistently downplayed shale’s longevity, arguing that higher prices are still needed to foster investment in production and avoid a future supply crunch. It is a line of reasoning still favoured by many oil company chief executives too. But it looks, at best, outdated.
While the shale industry has undoubtedly relied on a gusher of Wall Street money to grow, often leaving investors disappointed by its ability to generate cash, Big Oil is now leading the way not just in getting production up, but in getting costs down.
Chevron says that returns on its shale investments are now “north of 30 per cent”, even with lower prices. Exxon says it could make a return of 10 per cent even if oil fell to $35 a barrel.
This is really quite incredible, today's corporate presentation by ExxonMobil.
But first a quick observation. Look at this screenshot, taken from an early slide in the presentation:
What do you notice? Finally, someone has quit mixing "Latin" abbreviations with "Anglicized" abbreviations. For eleven years doing the blog, I've been bugged by using the Latin "M" for a thousand and "MM" for a million but "B" for billion.
Finally, Exxon does it right:
- "K" for "thousand"
- "million" for "million"
- "B" for "billion"
Perhaps Exxon has done this for years, but this is the first time I've noticed it.
Okay, now back to the presentation. Some data points:
- Permian production guidance:
- one year ago at the 2018 Investor Day presentation: 600,000 boepd by 2025
- one year later at the 2019 Investor Day presentation: greater than 1 million boepd by 2024
- seven new facilities online and 6 more on schedule (as forecast one year ago)
- global demand going forward takes "AGW" into consideration
- without AGW: new supply of 550 billion bbls of oil and 2,100 trillion cubic feet of natural gas required
- with 2-degree Celsius "AGW": 370 billion bbls of oil; 1,750 trillion cubic feet of natural gas
- fuel oil demand drops off the chart! -- slide 10
- robust results even at $40-oil
- plan to grow earnings ~3x by 2025 at $60/bbl flat price
- for the archives: today, EPS = $4.88 (Yahoo!Finance); 3 * $4.88 = $14.64 (I'll believe it when I see it)