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Oil majors tread cautiously in Permian shale

  • Market: Crude oil, Natural gas
  • 09/08/21

ExxonMobil and Chevron are ramping up drilling operations in the Permian basin of west Texas and New Mexico, with a focus on squeezing out further efficiencies as they keep a tight lid on spending.

Chevron is adding rigs and completion crews to the biggest US shale formation in the second half of this year, expecting production to surpass 600,000 b/d of oil equivalent (boe/d) by the end of the year. And ExxonMobil plans to boost Permian production by about 40,000 boe/d in the third quarter from the 400,000 boe/d produced in the second quarter. The two majors have joined other large Permian producers in being able to take advantage of a significant reduction in service prices last year when the Covid-19 pandemic struck, according to consultancy Rystad Energy. They have also been able to offset subsequent service cost inflation with additional efficiency gains this year.

"There is a general consensus among Permian operators these days that the inflection point has already been reached for well productivity performance," Rystad head of shale research Artem Abramov says, adding that there is still room for efficiency gains in drilling and completion cost structure. Getting more from less is the priority after producers were forced to drastically scale back spending and drilling during last year's market crash. And with Opec+ spare capacity yet to make it back to the market, no-one is in any rush to accelerate output.

Chevron added a completion crew in the Permian in July, and expects to bring in another before the end of this year. It also expects to add at least one or two more drilling rigs to the five that are already in place. "We are going to stay disciplined around those returns," Chevron upstream chief Jay Johnson says. The company is returning to "efficient factory drilling" after focusing on lease retention in the previous year and a half, Johnson says. But he warns that the market is still oversupplied despite the overall picture of increasing oil demand. "And that is why we are being cautious, we are being balanced, and we are going to continue to monitor the market as we continue to decide how to ramp up our activity levels in the Permian," Johnson says.

Delayed payoff

ExxonMobil's full-year capital budget will be at the lower end of its $16bn-19bn guidance range, but the Permian is one of the key regions that will see higher spending in the second half of this year. The company spent heavily on above-ground infrastructure in the early days and is seeing the benefits now, chief executive Darren Woods says. ExxonMobil boasted of "really hitting on all cylinders and getting the sorts of efficiency that we have been targeting for the last couple of years" from the Permian in terms of boosting cash flow and capital efficiency, and driving down development costs.

ExxonMobil has doubled lateral-feet-per day drilling rates compared with 2019, and recently set an industry record by drilling a 12,500-foot (3,810m) lateral well in just 12 days in the Delaware basin. Drilling rates are around three times more efficient than they were in 2019. "Another way to think about this is that the eight rigs we are running today are achieving the same lateral length as it took close to 25 rigs to drill just two years ago," senior vice-president Jack Williams says.

Faster hydraulic fracturing rates have resulted in a 40pc decline in drilling and completion costs, and lease operating expenses are also down. Drilling efficiencies were highlighted by independents in second-quarter results, including Pioneer Natural Resources, one of the largest acreage holders in the Permian. And Diamondback Energy boosted its Permian oil output guidance after wells outperformed forecasts.

Permian basin rig count

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15/07/24

Polish gas reforms still needed: Energy Traders Europe

Polish gas reforms still needed: Energy Traders Europe

London, 15 July (Argus) — Recent government plans to amend Poland's onerous gas storage legislation are positive, but more serious reforms are necessary to foster increased competition, industry association Energy Traders Europe told Argus . The Polish government last month said it plans to amend the Act on Stocks in November , removing importers' obligation to maintain mandatory gas storage reserves and placing it on state-owned strategic reserves agency Rars instead. Energy Traders Europe welcomed the move but recommended several further steps to bolster competition and liquidity. The Act on Stocks "needs to be revised first and fast" before addressing other issues in the market, the association's gas market manager, Pawel Lont, told Argus . While shifting the obligation to Rars is a positive first step, Poland would still have "state-enforced storage filling with hardly any capacity left for commercial use", which removes an important flexibility source for the market, he said. Ultimately, storage needs to be reformed to a point at which commercial filling becomes not only possible but desired, Lont said. The government needs to ensure that the system provides an incentive for the storage operator to offer products that are attractive to users, Lont said, noting that currently "this incentive simply does not exist, and this set-up can only inflate the costs of gas consumption in Poland". Energy Traders Europe previously suggested that the strategic reserve should be calculated against the demand of vulnerable customers only, as opposed to all consumers, which would significantly reduce the overall burden and free up space for commercial use. It would also be desirable to move the start date of the draft storage legislation to 1 April 2025 and ensure that licence applications declaring the intention to start commercial activity after this date are tested for compliance with these new rules. It can take a year or more for licence applications to be approved, so "the sooner we start, the better", Lont said, adding that the licensing procedure in Poland is "undoubtedly the most problematic in all of Europe". Applications involve a long list of documents that are difficult to complete in a timely manner. There are also issues on the reporting side, with "an impressive list of 20+ positions reported to different bodies at different points in time" on top of standard EU reporting, Lont said. These obligations create exposure and considerable costs for companies, so it would be beneficial to run a critical review on their necessity, he said. And Polish transmission tariffs are high, although this is understandable given Gaz-System's construction of interconnectors with several neighbouring countries over the past few years. Polish tariffs are decided yearly, while entry/exit splits can also be adjusted, which is problematic for trading companies that would like to book longer-term products. The multipliers and seasonal factors "definitely deserve some rethinking as they severely inflate the costs of short-term capacity products, while booking yearly products in Poland can be quite a bet", he said. But even if these other issues are addressed, "We will [still] be looking at a largely monopolised country, with the dominant player having exclusive access to LNG terminals", Lont said. While the gas release programme is positive for the market, it would be beneficial to see whether Orlen's dominance could be challenged at import terminals. Orlen has booked all capacity at the Swinoujscie terminal, as well as at the planned Gdansk terminal, meaning it continues to be the sole beneficiary of the 100pc discount on entry to the grid from LNG terminals. Several measures could be taken to open other companies' access to the terminals, such as secondary capacity trading, use-it-or-lose-it rules or set-aside rules and limits when allocating capacity to a single entity, Lont said. But these measures would be ineffectual without a guarantee that other firms are ready and willing to book this capacity, so the reforms discussed above need to come first so as to ensure that these participants can actively trade in Poland beforehand, Lont said. In general, it is not unusual to have a dominant company in a given country, but "one just needs an environment in which the group cannot abuse its position and its offer can be challenged", he said. Orlen had a 91pc share of the Polish retail market last year, according to regulator URE. Poland has "all the cards" to develop a liquid gas market, but this takes time, so reforms must get going as soon as possible. Since the change of government, it has at least become "much easier to approach the ministries in Poland", which "helps a great deal on the transparency side", Lont said. By Brendan A'Hearn Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Iraq's Opec+ compliance challenges are not going away


15/07/24
News
15/07/24

Iraq's Opec+ compliance challenges are not going away

Dubai, 15 July (Argus) — Iraq's crude production fell in June but not by enough to stave off heat from the Opec+ alliance. State-owned marketing firm Somo said output dropped by 26,000 b/d on the month to 3.83mn b/d, excluding that from the semi-autonomous Kurdistan region. Production levels in the northern region are unclear, but are probably enough to take the overall country output to above the 4mn b/d limit imposed by the Opec+ agreement. Iraq has failed to meet this target in any month this year, and as the Opec+ alliance's least compliant member it agreed in May to make additional cuts to compensate for prior overproduction. The Opec+ secondary sources, which include Argus , put Iraq's output at 4.19mn b/d in June. Iraq's oil ministry on 14 July reiterated its commitment to meeting the 4mn b/d limit and reaffirmed its willingness to compensate for the excess production since the beginning of the year. Baghdad's mission is made more difficult by a lack of visibility in Kurdistan, where 400,000 of crude exports were taken off international markets in March 2023. Argus estimates output from the region at between 250,000 b/d and 300,000 b/d, much of which ends up in Turkey or Iran, but the Kurdistan Regional Government (KRG) has stopped providing any oil-sector data. Baghdad says a drop in its crude exports is evidence of attempts to improve compliance — shipments from the southern Basrah oil terminal averaged 3.29mn b/d in June, down from 3.36mn b/d in May and 3.41mn b/d in April, according to Somo. Kpler data put Iraq's crude exports at 3.24mn b/d in June, the lowest since the beginning of the year. Somo said the amount of crude supplied to domestic refineries increased to 475,000 b/d in June from 441,000 b/d in May and 421,000 b/d in April. It said 10,000 b/d were exported to Jordan. By Bachar Halabi Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Singapore LNG bunker sales post fresh highs in June


15/07/24
News
15/07/24

Singapore LNG bunker sales post fresh highs in June

Singapore, 15 July (Argus) — Demand for alternative marine fuels rose further in June at the port of Singapore, with LNG demand for bunkering touching fresh highs. Total bunker sales in June rose by 8.7pc from a year earlier to 4.27mn t, according to preliminary data from the Maritime and Port Authority of Singapore (MPA), lifted by a 2.7pc increase in vessel throughput in Singapore to around 10.11mn in June. But sales slipped by 11pc from a strong May. "It is [lower] LNG prices versus fuel oil prices, along with higher fuel demand, due to the longer passage through the Cape, [and] that is playing an important role," said a key Singapore-based LNG bunker supplier, referring to the increased demand from the rerouting of vessels because of attacks on shipping in the Red Sea region. Demand for bunkering LNG has increased this year, with Singapore recording 175,030t of LNG used to fuel ships in the first half of this year. This is more than a threefold increase from the same period last year when 36,900t of LNG was bunkered in Singapore. Demand for biofuel blends in the first half increased by 46.7pc versus the same period last year. January-June sales were 280,160t compared with 191,000t a year earlier. The blend of 76pc very-low sulphur fuel oil (VLSFO) and 24pc used cooking oil methyl ester, also known as B24, has been the first choice of alternative fuel among shipowners in Singapore, partly because of its drop-in character. Increased enquiries emerged for B24 in Singapore since April-May this year, with short-term tenders going to key shipowners planning voyages to Europe. "There are customers taking more volumes in H2 2024. Volumes wise [for the year, this] might not see a huge increase [but we] will just see more customers," said an international trader. Consumption of conventional bunker fuels has remained largely steady in Singapore, with the exception of high-sulphur fuel oil (HSFO) where sales for June rose by 26pc compared with a year earlier to 1.56mn t. There was a 29pc increase for January-June this year against the 2023 equivalent. Firmer demand has continued for lower priced HSFO, particularly for vessel owners hoping to maximise the use of installed exhaust scrubber systems in handling alternative marine fuels. VLSFO consumption was down by 2pc in the first six months of 2024 versus the same period in 2023, with overall demand largely unchanged. Supplies have been higher in Singapore from this year's second quarter, which is expected to remain in the short term, said industry participants. Red Sea diversions Singapore has absorbed 40pc of the increased demand created by the Red Sea disruptions, data from the International Bunker Industry Association show. Demand in Singapore rose to 4.62mn t/month in this year's first quarter from 4.23mn t/month in 2023. Container terminals in Singapore were congested in the first half of the year because of Red Sea voyage rerouting. Container throughput at the city-state grew by 6.4pc from a year earlier in the first half of 2024 to 20.25mn 20ft equivalent units (TEUs) by June, according to the MPA. Singapore in May recorded a 7.7pc year-on-year increase to 16.9mn TEUs, said Singapore's transport minister Chee Hong Tat. Tonne-mile demand for tanker vessels is expected to grow this year. Greek crude tanker owner Okeanis Eco Tankers forecasts tonne-mile demand to grow by 5.6pc in 2024 and by a further 5.5pc in 2025. By Cassia Teo, Sean Zhuang and Mahua Chakravarty Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Australia’s Snowy, Lochard ink Iona gas storage deal


15/07/24
News
15/07/24

Australia’s Snowy, Lochard ink Iona gas storage deal

Sydney, 15 July (Argus) — Australian state-owned utility Snowy Hydro has signed a 25-year deal to store gas at the country's largest domestic gas storage in Victoria state to support its gas-fired power stations. The agreement with the 26PJ (694mn m³) Iona site, owned by domestic gas storage firm Lochard Energy, will commence in January 2028. This will be ahead of the permanent closure of the 1,480MW Yallourn brown coal plant, operated by Hong Kong-owned utility EnergyAustralia, in mid-2028. "The gas storage agreement with Lochard Energy will support the operation of our gas-fired power stations in Victoria," Snowy Hydro chief executive Dennis Barnes said on 15 July. Snowy Hydro, which owns and operates three gas-fired power stations totalling 1,290MW at present, is building the 750MW Kurri Kurri gas-fired plant , of which the initial 660MW stage is scheduled to come on line in late 2024. Snowy's 320MW Laverton North and 300MW Valley Power generators are located in Victoria. The deal is expected to underwrite the Heytesbury underground gas storage project , Lochard's chief executive Tim Jessen said, which will expand the capacity of Iona by approximately 3PJ. Australia's southeastern states are expected to face significant shortfalls of gas later this decade as fields supplying Victoria's 1,150 TJ/d (30.7mn m³/d) Longford gas plant deplete. A mixture of pipeline expansions to bring more gas south from Queensland state, LNG import terminals, and reducing demand have been floated to bridge this gap. Two LNG import terminals are proposed for Victoria but both require environmental approvals from the state government. Snowy Hydro is facing significant pressure from the federal government over its delayed Snowy 2.0 pumped hydroelectric project, which has suffered significant cost overruns and delays. Snowy last year said the scheme's costs had doubled to A$12bn ($8.1bn) from a previous A$5.9bn estimate , which was itself higher than the original guidance. By Tom Major Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Trump survives apparent assassination attempt: Update


14/07/24
News
14/07/24

Trump survives apparent assassination attempt: Update

Updates with changes throughout Washington, 14 July (Argus) — Former US president Donald Trump was grazed by a sniper bullet during a campaign rally in Pennsylvania on Saturday but survived what appears to have been an assassination attempt. The suspected shooter was killed by US Secret Service agents. A rally attendee was also killed, and two other spectators were critically wounded in the incident at a campaign stop in Butler County, Pennsylvania, the Secret Service said. Televised images showed Trump with what appeared to be blood on his right ear and face being escorted from the stage by Secret Service agents. Trump managed to pump his fist while being rushed off the stage. He was taken to a local medical facility for treatment. "I was shot with a bullet that pierced the upper part of my right ear," Trump said later on his social media platform Truth Social. "I knew immediately that something was wrong in that I heard a whizzing sound, shots, and immediately felt the bullet ripping through the skin. Much bleeding took place, so I realized then what was happening." Trump said "it is incredible that such an act can take place in our Country." President Joe Biden said he was grateful to hear Trump was "safe and doing well" and said he was trying to reach out to his political opponent. "There's no place for this kind of violence in America," Biden said. "We must unite as one nation to condemn it." The suspected shooter fired multiple shots toward the event stage from an "elevated" position outside of the rally security perimeter, the Secret Service said. Secret Service personnel "neutralized" the shooter, the Secret Service said. Trump is scheduled to accept his party's nomination for president next week at the Republican national convention in Milwaukee, Wisconsin. By Haik Gugarats and David Ivanovich Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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