Exxon and Chevron accelerate shale production

Investment by large oil groups promises further supply growth despite decline in prices.

ExxonMobil and Chevron are accelerating the pace of their production growth in the Permian Basin, the heart of the US shale oil boom, indicating that the country’s output is likely to keep increasing strongly despite the fall in crude prices since October.

Reporting earnings for the fourth quarter of last year, both companies, which are the largest US oil groups, talked about stepping up activity and output in the Permian region of Texas and New Mexico.

Exxon and Chevron have been in the forefront of moves by large international oil groups to invest in the US shale industry, which was first opened up by smaller exploration and production companies.

The quick paybacks and flexibility of US shale operations have been attractive for large oil companies, although some analysts have raised concerns that returns will be lower than for the large projects in challenging conditions such as deep water which are their traditional strengths.

Exxon has stepped up the number of rigs it is running in the Permian Basin above its previous plan, and increased its production there by 93 per cent from the fourth quarter of 2017. Darren Woods, the company’s chief executive, said the company was planning to accelerate its investment further.

Speaking on a call with analysts — an appearance that Exxon’s chief executives have not traditionally made in the past — Mr Woods said: “We see additional upside well beyond the growth trajectory that we shared previously,” adding that he would give further details at the company’s investor day in March.

Chevron said it had paused its programme of adding more rigs, but said its production growth was also running well ahead of its earlier expectations, rising by 70 per cent compared with 2017.

However, the two companies showed a divergence in their cash position. Even though Exxon’s revenues are about 70 per cent greater than Chevron’s, its cash flow from operations was only 8 per cent higher at $8.6bn in the fourth quarter. It also has significantly higher capital spending, which was $7.84bn in the quarter compared to Chevron’s $5.76bn.

The result was that in 2018 Chevron was able to buy back $1.8bn worth of its shares and cut its net debt by nearly $10bn to $24bn, while Exxon’s debt fell just $4bn to $38bn.

Exxon also planned to step up its capital and exploration spending next year to $30bn, Mr Woods said, an increase of $2bn on its previous plan and of more than $4bn from the $25.9bn it spent last year.

Another imminent commitment for Exxon is likely to be the $10bn Golden Pass liquefied natural gas export project in Texas, a joint venture with Qatar Petroleum. Mr Woods said the two companies had been working to take the investment forward, “and look forward to announcing something here in the very near term”.

Recommended Markets Insight David Sheppard Read Ed Crooks’ weekly newsletter on the energy sector, Energy Source Chevron this year plans $20bn of capital spending, in line with $20.1bn last year and its previous plans.

The two companies set out their investment plans as they reported strong earnings for the fourth quarter.  Excluding one-off items such as asset writedowns and the impact of US corporate tax cuts, Exxon’s earnings were $6.4bn, up 73 per cent from the equivalent period of 2017 and well above the average of analysts’ forecasts. Its shares closed up 3.6 per cent at $75.92.

Chevron’s earnings per share were $1.94 for the quarter, up 19 per cent and also above the average forecast. The company also reported surging production, with a 7 per cent increase to 2.93m barrels of oil equivalent a day. That is an unusual pace of production growth for a company of Chevron’s size, boosted by its expansion in the Permian and increases at its giant Australian LNG projects Gorgon and Wheatstone. Its shares ended 3.2 per cent higher at $118.37.

https://www.ft.com/content/518bd114-2627-11e9-b329-c7e6ceb5ffdf