The top-producing U.S. oil basin, the Permian, is setting records in production, although growth has slowed in recent months as the number of drilling rigs drops.
The New Mexico part of the biggest U.S. shale play has seen larger growth than Texas in recent years, data from the U.S. Energy Information Administration (EIA) has shown.
Large producers with a lot of inventory, including Chevron, can shift their Permian drilling programs to more single bench, high-return developments in New Mexico, the U.S. supermajor said earlier this year.
New Mexico’s Growth Accounts For 50% of Crude Output Increase
New Mexico saw the highest crude oil production growth of any U.S. state last year, with output gains of 300,000 barrels per day (bpd) accounting for half of America’s oil production increase, the EIA said in a report last month.
Total U.S. crude oil production increased by 600,000 bpd in 2022 compared with 2021, averaging 11.9 million bpd, per EIA’s Monthly Crude Oil and Natural Gas Production report.
For the third year in a row, New Mexico’s oil production growth eclipsed the growth of crude output in any other U.S. state, including Texas, the biggest U.S. oil-producing state and also home to part of the Permian shale basin.
Crude oil production in New Mexico jumped by 300,000 bpd to 1.6 million bpd in 2022, a record for the state, the EIA has estimated.
New Mexico and Texas contributed the most growth to U.S. crude oil production in 2022, while oil output in the rest of the United States grew by just 0.6% last year, or by 33,000 bpd. Related: Oil Loses 1% As Fed Temporarily Pauses Rate Hikes
Last year, New Mexico was the nation’s second-largest crude oil-producing state, after Texas. New Mexico accounted for more than 13% of total U.S. crude oil production according to EIA data.
Supermajors Keep High Permian Output Targets
The U.S. supermajors plan to significantly grow their oil and gas production in the Permian basin, and have recently reiterated their ambitious output targets.
“We're now forecasting that our Permian production will reach about 1 million barrels a day by 2027,” Exxon CEO Darren Woods said on the Q4 2022 earnings call at the end of January 2023.
“If you think about ultimately getting to 1 million barrels a day by 2027, that's roughly a 13% compounded annual growth rate. That's not going to be steady every year. That will kind of fluctuate, call it, plus or minus 5%,” Woods noted.
Chevron also targets a million barrels of oil equivalent production in the Permian, by 2025.
“With our large inventory, we’re able to shift our operated program to more single bench, high-return developments in New Mexico. Our guidance remains to achieve one million barrels of oil equivalent per day in 2025,” Nigel Hearne, Chevron’s EVP of Oil, Products & Gas, said on the company’s Investor Day in February.
U.S. Shale Output Growth Slowing
However, signs are emerging that growth in the U.S. shale patch, including in the Permian, is slowing.
The biggest U.S. shale regions are expected to produce a record-high level of crude oil in July, but growth is sputtering and set to be the slowest since December 2022, data from the EIA’s Drilling Productivity Report showed earlier this week.
The seven main shale-producing regions in the United States are expected to pump 9.375 million bpd of crude oil next month, a record high, but growth would be only 8,000 bpd higher than the estimated June crude oil production of 9.367 million bpd, the report showed.
The Permian, the top-producing region, is set to see only a 1,000-bpd increase in output, although July production is expected at a record 5.763 million bpd. The rise in output would be the smallest in the Permian since February 2023.
Oil production increases are slowing as the new priorities of the shale patch – capital discipline and a focus on returns to shareholders and debt repayments – have coupled with supply chain constraints and cost inflation to weigh on growth in recent months.
Higher costs are constraining production growth and eating into margins despite the fact that oil prices haven't moved lower than $70 per barrel for an extended period of time over the past year and a half.
“That squeeze in the margin is really keeping U.S. E&Ps (exploration and production companies) from moving forward in a significant way” despite OPEC's efforts to push up prices, Pioneer Natural Resources Vice President Beth McDonald told Reuters at RBN Energy's crude export conference in Houston last week. In addition, shale investors want more returns and a limit on spending, McDonald added.
“In general, you'll still see those modest growth rates and those low reinvestment rates because we continue to focus on returning cash to shareholders,” one of Pioneer’s top executives added.
Even at a slower pace, the Permian has several more years of production growth, analysts say, and a large part of that growth would likely come from top drilling locations in New Mexico.
By Tsvetana Paraskova for Oilprice.com
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