Exxon-Chevron Permian slugfest expected to last years

Exxon Chevron battle in permian

Jordan Blum – Houston Chronicle –The nation’s biggest energy players, Exxon Mobil and Chevron, are emerging as the biggest competitors in the booming Permian Basin, and they’re set to duke it out in the region for more than a decade to come, analysts said Friday.

Earlier this month, Exxon Mobil and Chevron both said they planned to grow their Permian Basin production to about 1 million barrels of oil equivalent a day within five years, roughly tripling their current output.

“These players are set to increase collective output to over 2.5 million barrels of oil equivalent per day by 2030, leaving all well-established shale producers behind,” said Artem Abramov, head of shale research at Norwegian research firm Rystad Energy.

Both companies also are leading the emergence of West Texas’ Permian in the Delaware Basin portion that extends well into southeastern New Mexico, bringing an oil boom to Texas’ neighbor.

The biggest difference between them is California-based Chevron has a large legacy position in the Permian that it sat on for decades, while Irving-based Exxon Mobil has had to spend billions of dollars in recent years to grow its acreage into one of the largest positions.

As a result, Exxon has to drill about twice as many new wells as Chevron to reach the communicated production goal, Rystad said. But that’s exactly what is happening. Exxon is by far the most active driller in the Permian now with close to 55 drilling rigs in service, roughly double Chevron’s rig count. For context, there are nearly 460 active drilling overall in the Permian, accounting for more than 55 percent of the total oil-drilling rigs nationwide.

Chevron has about 1.7 million legacy acres across the Permian’s Midland and Delaware Basins — not counting some recently acquired additions — while Exxon has built up close to 1.6 million acres. Chevron has larger upside potential in the Delaware, while Exxon holds more drilling locations in the Midland Basin, Rystad noted in a new report.

Chevron’s position and productivity lets it produce at less than $5 per barrel of oil equivalent compared to the industry average between $8 and $9 per barrel. Exxon is still well below average at about $6.30 per barrel, Rystad estimated.

“While Chevron is currently leading in terms of well productivity, economics and total Permian output, Exxon Mobil is expected to continue to close the gap in the years to come,” Abramov said.

With their size and scale and ability to buy more cheaply in bulk, Chevron and Exxon Mobil are turning the Permian into a manufacturing or factory center, completing more wells from single locations using a standardized, repeatable approach.

“Trial and error may not be our wheelhouse, but it’s technology and scale,” Chevron Chief Executive Michael Wirth said last week in Houston. “In a factory-drilling operation you do the same thing many times, and quickly you learn better ways to do things.”

Rystad sees those advantages benefiting the companies for many years to come.

Higher investments coupled with potential well-performance improvements are likely to give an edge to Exxon Mobil from 2020 to 2030,” Abramov added. “On the other hand, a larger acreage position with considerable upside potential provides Chevron with an opportunity to continue to grow post 2030.”


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