The US oil majors are relying on the Permian — the top US shale basin — as a key driver of growth for their slimmed-down portfolios for years to come, but that does not mean it will be plain sailing all the way.
Independent producers have since last autumn been sounding the alarm over declining well productivity and reserves in the Permian, which straddles western Texas and southeastern New Mexico. Although its output has hit a record high, its rate of expansion has been slowing in recent months, according to the EIA.
ExxonMobil and Chevron were among the last to revive their Permian output growth in the aftermath of the pandemic and have been quickly making up for lost time. Both talked up the long-term prospects for the basin on recent fourth-quarter earnings calls, but they also warned of bumps along the road.
Chevron said that Permian output growth will be a “little bit lower” this year than in 2022, when its production from the region increased by 16pc to 707,000 b/d of oil equivalent (boe/d). It was able to tap into a backlog of drilled but uncompleted (DUC) wells coming out of the pandemic, but that source of relatively inexpensive supply has been largely exhausted.
It is also working on drilling deeper wells and improving the spacing between them. “Our revised plan will have some deeper targets, a few more rig moves and a few more single bench developments, all of which brings down that pace a little bit,” chief executive Mike Wirth says.
Analysts will have to wait until Chevron’s annual investor day on 28 February for more details around its Permian plans. “With some of Chevron’s independent peers having issues in the play over recent months, the market may remain concerned ahead of this event,” Canadian bank RBC wrote in a note.
Meanwhile, ExxonMobil, the biggest US oil company, forecasts its output from the Permian will grow by 50,000 boe/d to more than 600,000 boe/d in 2023. That would be about half the rate of growth seen in 2022. As oil prices rebounded from the pandemic, the company also ran down its DUC backlog, which it says will need to be rebuilt to an “optimum level” to prepare for the next few years.
But ExxonMobil reiterates its long-term goal of reaching 1mn boe/d of Permian output by the end of 2027, two years later than originally planned because of the pandemic. That represents a 13pc compound annual growth rate, according to chief executive Darren Woods. “That’s not going to be steady every year,” he cautions. “That will kind of fluctuate, call it plus or minus 5pc.”
Permanent solution
The focus in the Permian is to bring additional output on line more efficiently. “That’s a function of the ongoing work we’ve got, to bring our technology and operational capabilities to bear in the Permian and continue to improve what we’re doing there,” Woods said.
Higher output from the Permian, as well as Guyana, helped offset the effect of divestments and the loss of ExxonMobil’s Russian assets last year. Although inflation in the Permian basin is “really, really hot”, Woods says the company is using its scale and purchasing power to keep costs under control across all its projects. The latest Dallas Federal Bank survey of shale producers saw signs that inflation in the sector may be moderating.
ExxonMobil would be open to acquisitions when valuations are better aligned between buyers and sellers. “We continue to look for where we see the opportunity for bringing value for undeveloped resources in the Permian,” Woods says. “Our focus is where can we leverage what we’re good at, and bring value above and beyond what a potential acquisition would be able to do without us.”
