ExxonMobil is chasing further production growth from the Permian just as Chevron is slowing down to focus on running its operations in the leading US shale basin for cash flow.
The differing strategies from the US majors in relation to the Permian, the engine of US crude output growth, comes as shale has cooled off as a result of oil's price slide this year, with some smaller operators warning that the sector is fast approaching a tipping point.
ExxonMobil, which reported record output of 1.6mn b/d of oil equivalent (boe/d) from the basin in the second quarter, plans to further boost its Permian production by 44pc to 2.3mn boe/d bwy 2030. Crucially, while other operators have sounded the alarm over peak output, ExxonMobil sees growth continuing well into the next decade. "Nowhere is our emphasis on technology and innovation paying off more clearly and immediately than in the Permian," chief executive officer Darren Woods says.
The company is seeking to boost recovery rates from the basin by drilling longer lateral wells and introducing a new lightweight proppant designed to help extract more oil and gas from wells. So far, the proppant has been a success, improving recovery rates by up to 20pc, and the company plans to deploy it in a further 150 wells by the end of the year. ExxonMobil has also taken advantage of adjacent acreage to drill four-mile laterals without any loss of productivity. "Others are drilling wells half that length, at far greater cost, resulting in much lower capital efficiency," argues Woods.
And the top US major is not done with deal-making after wrapping up the $59.5bn acquisition of shale giant Pioneer Natural Resources last year, even if the bar remains high for another corporate takeover. The Pioneer deal is expected to reap as much as $3bn in average annual cost savings, and that number could be revised up again at the end of the year, clearing the way for the company to seek further opportunities. "We're not really interested in buying volumes," says Woods. "We're interested in building value and building volumes."
Flipping the script
Chevron, in contrast, is hunkering down in the Permian after reaching a targeted production plateau of 1mn boe/d during the second quarter. One of the criticisms levelled at the industry in the heyday of the shale boom in the last decade was that the majority of cash flow was directed back into growth, and investors were left with little to show. Chevron is flipping that script on its head by moderating growth and reducing spending. The billions of dollars in additional free cash flow the company expects to generate as a result will go towards shoring up its balance sheet, as well as investment elsewhere.
Chevron's capital expenditure (capex) in the Permian this year is set to come in at the lower end of its $4.5bn-5bn guidance range thanks to improved efficiencies. "As we deliver that free cash flow growth of $2bn next year in the Permian, you should see [capex] drop further as we continue to manage a sustained performance in the Permian," says vice chairman Mark Nelson. "We're definitely drawing down our capex and generating a lot more free cash flow."
The company has been able to bring down costs by 30pc over the past few years on account of improved well and completion designs, as well as reduced cycle times and technology improvements. And while talk of a production plateau may not be welcome news to President Donald Trump's administration, which has encouraged the industry to pump flat out, Chevron can point to record production from its overall US operations in the second quarter.
