Majors gallop ahead of their US shale guidance

US majors ExxonMobil and Chevron are advancing their US unconventional production plans at a much faster pace than prior guidance, as improving technology and operational scale helped to boost output in the third quarter.

ExxonMobil's production in the Permian basin rose by 57pc from a year earlier to an average of 170,000 b/d of oil equivalent (boe/d) in July-September, following a substantial acquisition of acreage last year. The firm had 38 operational rigs in the basin in the third quarter, compared with 34 in the second quarter. This fleet is evenly split between ExxonMobil's Permian, Delaware and Midland acreage and exceeds its earlier target of 36.

The major's Permian and Bakken shale output combined rose by over a third on the year. Its shale operations helped to boost overall US liquids production to 555,000 b/d in the third quarter from 500,000 b/d a year earlier. "We expect to continue to increase volumes over time as we ramp up activity in the Permian," chief executive Darren Woods says.

Similarly, Chevron's US liquids output rose by 25pc on the year to 654,000 b/d in July-September, while natural gas production grew by 14pc to 1.06bn cf/d (10.9bn m³/yr). Output from the major's shale operations, centered on the Permian, jumped by 80pc to 338,000 boe/d. Chevron operates 20 rigs in the Permian, with a further seven non-operated rigs, helping it to drive the growth.

"That is the equivalent of adding a mid-sized pure play Permian [exploration and production] company in a matter of months," chief financial officer Pat Yarrington says. "Our production levels are trending about a year ahead of the guidance."

ExxonMobil is betting on its network of pipelines and processing plants connecting its refining and chemicals operations to help capture price differentials and improve margins. The major's Gulf coast refineries have the ability to run 450,000 b/d of light crude, which is due to rise to 750,000 b/d through expansions and debottlenecking. ExxonMobil has 270,000 b/d of committed pipeline capacity to move Permian oil to the Gulf coast, which it is seeking to increase. The oil is currently processed at 13 sites worldwide, including in Singapore. "We really have a unique position that is already generating additional value today," senior vice-president Jack Williams says. "We are positioned well in the Permian across the full value chain."

Step up to the plate

ExxonMobil's main aim now is to delineate the Permian acreage it acquired last year. It is also developing infrastructure to move the oil to the Gulf coast for export. But it does not rule out further Permian acquisitions. "We continue to scan the market. We have a lot on our plate but we continue to look," Williams says.

Similarly, Chevron does not rule out expanding its US Gulf coast downstream facilities for "possible integration and synergies" with its growing Permian presence, executive vice-president of downstream Pierre Breber says. The major only has one Gulf coast refinery, feeding its large retail market with third-party supplies. But Chevron will keep its Permian rig count flat at 20 "to capture all the efficiencies that we can", Yarrington says. And it will focus on maximizing output while continuing to lower costs.

BP increased output from its gas-heavy onshore business in the US to 321,000 boe/d in the third quarter, compared with 304,000 boe/d a year earlier, while costs fell to $6.55/boe from $7.04/boe. The firm's capital expenditure declined to $215mn from $241mn. And BP closed the $10.5bn acquisition of UK-Australian firm BHP's US onshore assets on 31 October, which will boost its shale production further in the fourth quarter and increase the weighting of liquids in its output. The BHP assets produce around 190,000 boe/d.