Chevron talking higher productions from shale in the United States

Alan Penny

6 March 2019

3 min read

Chevron logo

In what could be yet another problem from OPEC, Chevron has announced that they are going to boost production from shale in the United States. While OPEC has been cutting production as of late, the reality is that OPEC isn’t what it used to be, and is only one player in the market, as opposed to the biggest player in the market.

Energy has been on its back foot

While crude oil prices have rallied a bit over the last several months, the reality is that they are still relatively low from a historical standpoint. With that being the case, and the stubbornness of current levels, a lot of traders have stepped away from the energy sector overall. In fact, the weighting of shares from the energy sector in the S&P 500 index fell to 6% in 2018, even though it was 8.4% in 2014. That kind of destruction of value certainly has affected the entire group of major companies.

The solution

To increase investor interest, both Chevron and Exxon Mobil Corp. have started to emphasize the concept of achieving faster returns from investments in shale rather than the ideas of the past, which included massive offshore oil fields. That being said, Chevron has the advantage as it has operated in the Permian Basin for several decades. Chief executive Mike Wirth was quoted as saying that their position in the Permian Basin continues to get stronger, and more profitable. By emphasizing a quicker return on investment, the hope is that it should bring in fresh buying to the stock.

Chevron claims to be delivering production goals currently, while Exxon is several years away from doing so. It is because of this that although both companies should benefit from this change in attitude that Chevron may be the leader.

Permian Basin

The Permian Basin is the “Saudi Arabia” of shale oil, and as techniques continue to expand when it comes to the type of fracking that can be done, the output continues to rise. In fact, the Permian has a lot to do with why the United States is now a net exporter of crude oil. This is a huge change in the dynamic of the markets, and with a friendly White House, it’s very likely that crude oil production will only climb from here when it comes to the Americas.

Chevron produced 337,000 barrels per day in 2018, which was an increase of 84% in production from just a year ago. Beyond that, Chevron also raised the estimate of its reserves in the Permian, Texas, and New Mexico to 16.2 billion barrels of recoverable crude from the previous estimate of 9 billion barrels.

Dumping legacy projects

Chevron also suggested that they are looking to sell assets worth between $5 billion and $10 billion over the next several years, including production assets in Azerbaijan, Denmark, and the North Sea. Instead of investing in these legacy projects, they expect to spend $3.6 billion in the Permian Basin and another $1.6 billion on various other shale oil fields in the United States and Canada.

Written By
Alan Penny

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