Chevron shifts to Permian Basin shale, boosts spending by 67 per cent

Permian Basin

Chevron is shifting its focus from mega-projects to its Permian Basin assets.  Chevron photo.

Chevron owns 2 million acres in Permian Basin

Chevron Corp is shifting its focus from multi-billion dollar mega projects to the Permian Basin, hoping to weather low oil prices by quickly developing its vast shale holdings in Texas and New Mexico.

In an interview with Reuters, Chevron CEO John Watson said he wants to put the shale play in the Permian to the top of the line up of the company’s biggest ventures.  This marks a fundamental change in the company as just five years ago, Watson said Chevron executives hardly mentioned the shale basin.

“Some of the best things we have in our portfolio are the shales,” Watson told Reuters. “My employees in the Permian know I’m featuring it as something very important.”

The 2 million acres the company owns in the Permian Basin have always been controlled by the oil major and is largely free of royalties to landowners.  With low oil prices, the West Texas assets have become a way for Chevron to cover its dividend and find new reserves.

Watson said in the coming few years, there are no plans for any new mega-projects.

“We’re just in a period now where markets are weak and everyone is focused on controlling costs,” Watson said.

In the next ten years, Watson expects production in the Permian to grow eightfold to over 700,000 b/d.  By the end of this year, the company expects to add nine more drilling rigs to its current 11.

The shift to the Permian, where Chevron is expected to pump over 9 billion barrels of oil which is mostly owned outright by the company, will give the California-based firm a cost advantage over other Permian producers.

According to the Reuters report, Chevron’s portfolio in the Permian is worth at least $43 billion.  The company believes it has a greater market value than Pioneer Natural Resources Co, Concho Resources and other Texas producers.

Despite the company’s focus on the area, critics say the company is not moving quickly enough to take advantage of the opportunities in the Permian Basin.  “We’re growing our portfolio in the Permian as fast as anyone,” counters Watson.  He adds “We’re focused on growing value and growing the dividend over time.”

More highly valued by investors than rival Exxon Mobil because Chevron protects its dividend, the company is also preferred by a number of wealth managers, including Oliver Pursche of Bruderman Brothers LLC.

“We like inexpensive, recurring revenue streams” such as the Permian, Pursche told Reuters.

In 2017, Chevron expects to boost spending in the Permian by 67 per cent to $2.5 billion.  That increase makes the Permian Basin the second-largest area for spending this year for Chevron, after the Tengiz project in Kazakhstan.  The Tengiz facility is not expected to come online until the next decade.

 

 

 

 

 

 

 

Posted in: Texas

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