ExxonMobil and Chevron are going from strength to strength in the Permian basin, in an early indication that US crude production could once again surprise to the upside this year and throw a wrench in Opec's efforts to shore up oil prices.
After posting stellar results from the best-performing US shale basin in 2023, the top US oil majors are looking to build on that momentum by targeting longer lateral wells and faster drilling times, while softer inflation is also helping. Chevron aims to boost Permian output by 10pc this year, while ExxonMobil expects 7pc growth from its operations in the shale play that straddles western Texas and southeastern New Mexico.
Supply cuts by the Opec+ group over the past year or so have kept prices higher than they would otherwise have been, benefiting shale producers as well as others. The oil cartel might be counting on the wheels coming off the US oil output boom before long, and a sharp reduction this week in the EIA's growth forecast for this year could bear that out.
But a recent wave of consolidation in the shale sector — led by ExxonMobil snapping up Pioneer Natural Resources for $59.9bn and Chevron following with the $53bn acquisition of Hess — complicates the outlook. "Assets now controlled by the supermajors are bound to see higher growth rates than their public independent predecessors," Rystad Energy senior analyst Matthew Bernstein says. "This comes as a result of the supermajors' enormous scale within US shale, which enables them to grow production more aggressively and still preserve decades of inventory."
But other deals involving independent producers buying out private operators have seen growth plans scaled back as the new owners focus on shareholder returns. And those private firms that are left could slow down this year as they seek to "preserve inventory in order to take advantage of relatively high valuation multiples for high-quality acreage in the market right now", Bernstein says.
Not DUCing out
ExxonMobil's Permian output is expected to increase to about 650,000 b/d of oil equivalent (boe/d) this year after surpassing guidance in 2023. The biggest US producer is on track to hit 1mn boe/d from the basin in 2027, although this excludes the Pioneer acquisition, which will double its production from the region upon closing. The company is focused on building out its backlog of drilled but uncompleted (DUC) wells that can be brought on line quickly in the event of drilling setbacks elsewhere. Chief executive Darren Woods gave short shrift to an analyst who asked if US oil producers ought to keep production flat in order to appease the Saudis. "No," he said, laughing. "We're not going to run the business to appease an external member out there."
Meanwhile, Chevron forecasts a slight decline in its Permian output in the first half of this year — as the company rebuilds its stock of DUC wells — before growth bounces back to end the year at about 900,000 boe/d. It is on track to reach 1mn boe/d from the Permian in 2025, after overcoming drilling setbacks last year. Chief executive Mike Wirth also cited improved results from wells in New Mexico, which he said are "more productive, on average, than the rest of the portfolio".
While the majors are powering ahead in the basin, overall US crude output is poised to slow this year. After hitting a record 13.3mn b/d in December, the EIA expects US production to hold relatively flat this year and not to hit new highs until early 2025. But for now, the US majors are relying on efficiency improvements to get more out of the ground for less. "We need fewer rigs to drill the planned lateral feet that we've got in front of us," Wirth says.
