Exxon, Chevron Battle it Out in the Permian
On the heels of Chevron Corp. and ExxonMobil Corp. announcing their plans to pump more out of the Permian Basin, energy research firm Rystad Energy is checking to see which company has the most potential there.
The two U.S. shale heavy-hitters both anticipate their Permian production will reach about 1 million barrels of oil per day in the next five years.
But who will fare the best?
Rystad offers five key points:
- Drilling activity: Exxon will have to drill about twice as many new wells as Chevron to reach the production goal. As of 2018, Chevron’s unconventional output in the Permian was 75 percent higher than Exxon’s, so Exxon needs to accelerate drilling activity in order to close the gap and even exceed Chevron’s supply by 2025.
- Rig programs: Currently Chevron doesn’t plan to ramp up drilling in the Permian as it believes the current program is already optimized with respect to well fundamentals and midstream infrastructure. Exxon, however, believes a large scale ramp-up of its Permian drilling campaign is needed to achieve capital efficiency and generate billions of dollars in cash flow from the region by 2023.
- Acreage: Chevron’s legacy land accounts for 1.7 million acres across the Permian Delaware and Permian Midland basins. Exxon currently owns 1.6 million acres in the Permian, including a significant portion attributable to conventional targets in the Central Platform. Chevron has larger upside potential in the Delaware, while Exxon holds more drilling locations in the Midland Basin. Moreover, Chevron’s inventory is expected to deliver an average of five wells per section in Delaware and about six wells per section in Midland, while ExxonMobil will place seven and eight wells per section in each basin, respectively.
- Well economics: Chevron achieves exceptionally low costs for each barrel of oil equivalent (boe) produced in both the Texas and New Mexico parts of the Delaware Basin, standing at below $5 per boe. Exxon’s cost comes out slightly higher at $6.30 per boe, still considerably below the average of between $8 and $9 per boe.
- Scale: In the Delaware Basin, which is less developed than the Midland, Chevron leads in terms of average pad size as of 2018, on Texas and New Mexico sides. Exxon comes immediately after Chevron on the New Mexico side of the state border, with 3.3 wells per pad last year. In the Midland Basin, Chevron clocks in at about four wells per pad, and thus ranks again among the industry leaders.
Rystad Energy’s head of shale research Artem Abramov said Chevron and Exxon will leave all well-established shale producers behind.
“While Chevron is currently leading in terms of well productivity, economics and total Permian output, ExxonMobil is expected to continue to close the gap in the years to come,” he said. “Higher investments coupled with potential well performance improvements are likely to give an edge to ExxonMobil from 2020 to 2030. 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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