Chevron plans to ramp up investment in North America’s biggest oil field through 2025, reversing the pandemic-driven production decline, the company said in an investor presentation Tuesday. Chief Executive Officer Mike Wirth surprised investors by restoring the million-barrel Permian target only a year after it disappeared from the company’s guidance as Covid-19 crashed energy markets.
Q. Specifically around the Pasadena [Texas] refinery you recently acquired [from Petrobras] to take advantage of your Permian Basin upstream position. How are you adjusting your plans for Pasadena as your upstream development slows? How are you thinking about what you want to accomplish there?
A. That’s a good question. I think we’re happy with our acquisition of Pasadena. May 1 was when it closed a year ago, so we’ve been up in it for about a year. Some planned shutdown work on the crude unit is wrapping up. Our leadership there has done a great job managing a whole bunch of contractors coming onsite while making sure that they stay safe, they have the right PPE on, they’re social distancing. They’re still getting the work done but at the same time we’ve got to make sure we’re taking care of them. So I’ve been really impressed with the team there. You know, going forward, we’re evaluating when we finish that work, when do we start that back up — that’s all part of the conversation we just had around demand and where the world’s going. When we do finish the work, when we do get back up, we will start putting our Permian barrels through that refinery and we’ll start supplying our customers. The beauty of Pasadena is that it’s between our production and our customers, and we plan to continue with that. That strategy still holds, and I’m excited to see it start to happen going forward.
Chevron Corporation today announced a 2020 organic capital and exploratory spending program of $20 billion. The 2020 budget supports a robust portfolio of upstream and downstream investments, highlighted by Chevron’s world-class Permian Basin position, the company’s major capital project at TCO in Kazakhstan, and an advantaged queue of deepwater opportunities in the Gulf of Mexico.
In the upstream business, approximately $11 billion is forecasted to sustain and grow currently producing assets, including about $4 billion for Permian unconventional development and about $1 billion for other international unconventional development.
Chevron’s deals, ranging from large-scale joint ventures to small deals where it has leased land to other operators, give it a share of the oil its partners produce.
They also provide data from thousands of wells stretching back years, allowing Chevron to hone drilling strategies. In return, partners get access to areas adjacent to their wells and pipelines, reducing their costs.
Shale drilling has helped the United States reverse decades of declines in output to become the world’s largest oil producer and all the major U.S. oil companies have jumped on the shale bandwagon to boost their own production.
Occidental outbid Chevron for Anadarko Petroleum in a takeover battle this year, spending $38 billion and vowing to use its technology to squeeze more oil from the deal which gave it a combined 3 million Permian acres.
Exxon, meanwhile, spent $6.6 billion two years ago to buy more Permian land and is now running nearly three times more rigs than Chevron in a race to reach its target of producing 1 million bpd of shale by 2024.
But Chevron has two key advantages: it holds 2.2 million Permian acres, second only to the Occidental-Anadarko trove, and it owns mineral rights on much of its land so it doesn’t pay the 20%-25% production royalties most rivals face.
TPL’s top two revenue drivers are tying up in a $33B deal.
From TPL’s 10-K:
During 2018, we received $46.0 million, or approximately 15% of our total revenues (prior to deferrals), which included $22.9 million of oil and gas royalty revenue, $11.9 million of easements and sundry income (prior to deferrals), and $11.1 million of water sales and royalties, from Anadarko E&P Onshore, LLC and $49.4 million, or approximately 16% of our total revenues (prior to deferrals), which included $27.1 million of oil and gas royalty revenue and $18.9 million of revenue from sales of oil and gas royalty interests, from Chevron U.S.A., Inc.
Anadarko is water customer. Strange that Chevron is not.
TPL did sell $19MM in royalties to CVX in 2018 so we know that communication line is open.
XOM > CXO or NBL or PXD or DVN or XEC is probably next. This is a first big step in the majors cleaning up the Permian.
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 announced at an investor event Tuesday. That’s a nearly 40% 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 PLC,Royal Dutch Shell PLC and Occidental Petroleum Corp. are also focusing on the region.
Five years ago, Exxon, Chevron, BP, Shell and Occidental collectively made up about 9% 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%, according to data on ShaleProfile, an industry analytics platform.
Meanwhile, the big companies are just getting started. Exxon is now the largest operator in the Permian, with almost 50 rigs. The company estimates its Permian wells can generate a 10% 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 raising its production guidance to 900,000 barrels of oil and gas a day by 2023. Last year, it predicted 650,000 barrels a day by 2023. The company is boosting production without adding to its rig count, a testament to how size can lead to greater efficiencies.
Chevron employed what could be described as a tortoise-and-hare strategy in the Permian. While smaller companies at times paid more than $40,000 an acre to gain rights to prime drilling opportunities, Chevron held on to land it already owned in the region, which decades ago was one of the world’s biggest traditional oil fields, without having to join in the buying frenzy.
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Within hours of each other on Tuesday, the two largest energy companies in America announced they want to pump almost 2 million barrels a day combined in the Permian Basin of west Texas and New Mexico, a higher amount than most OPEC nations. Chevron plans to reach 900,000 barrels a day by 2023, while Exxon aims for 1 million by 2024.
“Our position in the Permian just continues to get better and underpins our resource base,” Chevron Chief Executive Officer Mike Wirth said in New York. The value of the company’s Permian position has doubled over the past two years with reserve additions, he said.