Unlike many oil and gas firms who had given up some of their acreage in the Permian before the shale revolution, supermajor Chevron and its legacy companies have been sticking with the huge acreage position in the basin since the early 1920s.
A century later, Chevron—unlike many other companies—doesn’t need to spend crazy per-acreage money to get access to what is currently the most prolific U.S. oil field thanks to the shale drilling technology.
Chevron plans to double its production in the Permian by 2022 and is investing in growing production at high-return short-cycle projects.
It’s not by chance that the U.S. supermajor has held onto its Permian position—it was a deliberate decision, Chevron’s vice president of global exploration, Liz Schwarze, said at a Permian-focused conference in Texas last week.
“We always knew that there was more to give from the Permian, but we didn’t quite know how,” Schwarze told the conference, as carried by E&P.
Now Chevron is trying new completion techniques to get more out of the wells and optimize operations to get more returns on investment, according to the Chevron manager.
In the upstream business, the company is investing this year US$10.4 billion to sustain and grow currently producing assets, including US$3.6 billion in the Permian and US$1.6 billion in other shale and tight projects, Chevron said in its 2019 budget plans announcement in December. Related: The Only Way For The Aramco IPO Is Downstream
“Our investments are anchored in high-return short-cycle projects, with more than two-thirds of spend projected to realize cash flow within two years,” chairman and CEO Michael K. Wirth said.
In the third quarter of 2018, Chevron reported its highest quarterly production ever as net oil-equivalent production of 2.96 million bpd rose 9 percent annually, thanks to the ramp-up of Wheatstone in Australia and a surge in production in the Permian.
“Permian shale and tight production in the third quarter was 338,000 barrels per day, representing an increase of 150,000 barrels per day. Let me say it again: this is up 80% relative to the same quarter last year. As many of you will realize, that’s the equivalent of adding a midsized Permian pure play E&P company in a matter of months,” Chevron’s Vice President and CFO Pat Yarrington said on the Q3 earnings call in early November.
Referring to concerns about limits in the takeaway capacity out of the Permian, Yarrington said that Chevron “feel very nicely covered for our position out of Midland on those elements for the next couple of years.”
Going forward, Chevron plans to boost its Permian unconventional production to 650,000 barrels of oil equivalent per day (boed) by the end of 2022, according to its 2019 Investor Presentation this month. Related: Oil Markets Unmoved By Modest Inventory Build
The supermajor will be relying on lower costs, higher realizations, and an increase in net acres to grow production and value in the Permian. Currently, Chevron has 2.2 million net mineral acres in the basin, of which more than 80 percent has no royalty or is low-royalty acreage. The company also boasted an approximately 40-percent decrease in development and production costs per barrel of oil equivalent between 2015 and 2017.
Chevron is set to update the market on its Permian production and possibly how much the lower oil prices late last year impacted Q4 earnings in its Q4 results release on Friday, February 1.
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The Q3 results surprised the market positively as the supermajor easily beat the analyst consensus forecast. The Wall Street Journal summary of analyst ratings shows many analysts rate the stock ‘buy’ and no one rates it ‘sell’ or ‘underweight’.
Ahead of the earnings, Goldman Sachs’ Neil Mehta believes that Chevron is one of the best positioned oil majors ahead of the Q4 earnings releases. Chevron is among the “free cash flow winners,” Barron’s quoted Goldman Sachs as saying.
The earnings release could offer a glimpse into Chevron’s progress in the Permian and potentially indicate how Big Oil has been coping with the volatile oil prices in the fourth quarter of 2018.
By Tsvetana Paraskova for Oilprice.com
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