By March 9, 2016 Read More →

Chevron moving away from large projects, eyeing Permian Basin tight-oil plays

With approximately 2 million net acres, Chevron is largest net acreage holder in the Permian Basin

West Texas

Chevron Chairman and CEO John Watson.

With billions already spent on large scale investments, Chevron’s re-focusing 2016 capital spending toward tight plays like the Permian Basin that are shorter-cycle, lower cost, and less risky.

“We’re completing major projects that have been under construction for several years. This enables us to grow production and reduce spending at the same time, which should improve our net cash flow significantly,” said John Watson, Chevron’s chairman and chief executive officer.

The Permian Basin for Chevron has 1,300 drilling locations that they say can make a 10 per cent return at $40 oil. At $50 oil, Chevron believes 4,000 locations can turn a profit and at $60, a whopping 5,500 locations.

“With an advantaged position in the Permian and a deep portfolio of operating assets, we’re transitioning our spending to more short-cycle, higher-return activity that utilizes existing infrastructure. We have a portfolio of assets that should allow production growth through the end of the decade, even at moderate prices.” Jay Johnson, executive vice president, upstream said.

Chevron said its cost to drill a horizontal well has fallen 40 per cent in the past year to $7.1 million and the time it takes to drill a well has been cut in half to 20 days. With a new well-stimulation method that costs 70 per cent less, the company has boosted its returns from the play by 30 per cent. Chevron expects to drill 175 wells this year with seven operated rigs and nine non-operated rigs.

West Texas

2017 start-up of $6 billion U.S. Gulf Coast petrochemicals project that includes a 1.5 million metric-ton-per-year ethane cracker and two world-scale polyethylene units. 

“Industry conditions are tough right now, with low oil and natural gas prices. We believe markets will improve, and we’ll be well positioned when they do. We have an excellent upstream and downstream portfolio, and we are driving operating and administrative efficiency across the company,” said Watson.

With Chevron’s reduction in large scale projects, and low oil and natural gas prices, Chevron is planning on reducing it’s workforce by 20-25 per cent. Chevron expects to cut 4,000 jobs this year, on top of the 3,000 it cut last year.

Chevron said it will cut its capital spending from $26.6 billion this year to $22 billion to $17 billion a year in 2017 and 2018.

“We’re in a fairly unique position in the industry,” Watson said. “We’re cutting spending pretty dramatically but we’re going to see higher volumes.”

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