Chevron, Exxon Mobil tighten their grip on fracking
Chevron and Exxon Mobil plan to significantly ramp up production in the oilfield at the heart of the American fracking boom, the latest sign that the next era of shale drilling is likely to be led by the major oil companies.
In the next five years, Chevron expects to more than double its production in the Permian Basin in Texas and New Mexico to 900,000 barrels of oil and gas a day, the company said at an investor event Tuesday. That is a nearly 40 percent increase from its previous forecast.
“The shale game has become a scale game,” Chevron Chief Executive Mike Wirth said in an interview. “The race doesn’t go to the one who gets out of the starting blocks the fastest. The race goes to the one who steadily builds the strongest machine.”
Not to be outdone, Exxon on Tuesday announced plans to increase its Permian output to 1 million barrels of oil and gas a day by as early as 2024, a day before it was expected to disclose growth at its own investor meeting Wednesday. BP, Royal Dutch Shell and Occidental Petroleum are also focusing on the region.
“We’re increasingly confident about our Permian growth strategy due to our unique development plans,” Neil Chapman, Exxon’s senior vice president, said in a written statement.
Big oil’s growing ambitions for the Permian follow a long-established pattern in the oil patch: Wildcatters and small exploration companies find ways to tap new reservoirs, then the big companies move in.
Five years ago, Exxon, Chevron, BP, Shell and Occidental collectively made up about 9 percent of crude production from modern fracking techniques in the Permian. In October, the latest period for which relevant figures are available, they made up about 16 percent, according to data on ShaleProfile, an industry analytics platform.
Those numbers are likely to grow significantly in the coming years, and it wouldn’t be a surprise for the big five to produce far more of the booming area’s crude within a decade, said Ed Hirs, who teaches energy economics at the University of Houston.
“It’s going to be extremely difficult for smaller companies to compete with the oil giants,” Hirs said.
As the energy giants continue their shale expansion, many have gained favor with investors. Chevron is up 14 percent in the past year even as crude prices have fallen, and all the biggest oil companies have outperformed the S&P 500.
Chevron, which now has the lowest debt relative to its size compared with any of its peers, says it can pay for its new spending and dividends at a price of about $51 a barrel. The company said that is the lowest among the big oil companies, citing data from Wood Mackenzie.
Chevron plans to avoid major spending increases in coming years even if prices rise, executives said. It said it would hold annual spending this year and next year between $18 billion and $20 billion, and allow it to grow slightly from 2021 to 2023 to a range of $19 billion to $22 billion.
Meanwhile, Exxon is now the largest operator in the Permian, with almost 50 rigs. The company estimates its Permian wells can generate a 10 percent rate of return at an oil price of $35 a barrel. While many companies reduced fracking activity in the fourth quarter of last year, Exxon increased it significantly to over 80 wells, more than double the total in the fourth quarter of 2017, according to Rystad Energy.
Chevron is expanding in the Permian Basin in Texas and New Mexico, raising its production guidance to 900,000 barrels of oil and gas a day by 2023. Not to be outdone, Exxon says it plans to boost its Permian output to 1 million barrels of oil and gas a day as early as 2024.