ExxonMobil and Chevron each see 2022 Permian Basin production slightly lower than forecast

Strong points

ExxonMobil’s Permian production will increase by 20%, not 25%

Chevron expects 700,000-750,000 boe/d low end

Optimization, DUC, supply chain issues all cited as factors

ExxonMobil and Chevron each forecast somewhat weaker respective production profiles in the Permian Basin for 2022 than previously reported, although both continue to operate high volumes of several hundred thousand barrels per day of oil equivalent. the majors’ CEOs said in separate third-quarter earnings calls. October 28.

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ExxonMobil, which for much of 2022 had touted 25% growth in the west Texas and southeast New Mexico basin this year above 2021’s 460,000 boe/d average production , cut the growth target to about 20%, CEO Darren Woods said in webcast remarks.

Chevron expects its Permian production growth profile to tilt down from its earlier guidance of 700,000 boe/d to 750,000 boe/d, CEO Mike Wirth said on his earnings call .

While CEOs have offered a variety of reasons for lower expectations, analysts note that supply chain and labor shortages are the current biggest impediments to production growth.

“The whole industry is suffering” from these constraints, said Reed Olmstead, executive director of research analytics for S&P Global Commodity Insights. “Costs for new labor (needed to increase the number of rigs and fracking crews) are skyrocketing, turnover is huge. Labor is a real challenge.”

Equipment is ‘executed…hard’

“Secondly…the equipment works really hard, so maintenance costs go up, but only if you can get the parts,” Olmstead added. “So that slows things down too.”

For ExxonMobil, a 20% growth rate would put its 2022 Permian production at approximately 552,000 boe/d, compared to the 575,000 boe/d that would have resulted from a 25% year-over-year growth rate. , Woods said. He added that in 2021, ExxonMobil had achieved a Permian growth rate of 25%.

Woods said one of ExxonMobil’s challenges in the Permian is to maximize the recovery of its vast resource base in the basin.

“Were [making sure] we do it in the most cost-effective way,” he said. “Obviously… we are optimizing and adjusting our development plans. It continues to be the case.”

In the third quarter, ExxonMobil produced a record 560,000 boe/d since the Permian. That was part of its 3.72 million boe/d of total oil and gas production in the third quarter of 2022, compared to 3.67 million boe/d in the same quarter of 2021.

ExxonMobil’s production in the third quarter of 2022 included 2.4 million bbl/d of oil and 7.9 Bcf/d of natural gas.

Chevron produced 708,000 boe/d in the third quarter of 2022 from the Permian, Wirth said, adding that’s up about 15% from the first three quarters of 2021, which was “only a hit” of more than 600,000 boe/d. He noted that the company produced 646,000 boe/d from the Permian in the third quarter of 2021.

Role of CIDs in production gaps

Wirth suggested that in addition to supply chain issues, the number of drilled but uncompleted wells, commonly referred to as DUCs, may also have disrupted Chevron’s Permian orientations.

DUCs have been waiting for completion for weeks, months, or often years, for many reasons: the operator does not want to produce its high-volume wells in a low-priced market, or the E&P company was drilling wells in batches and had not yet started completing wells, which is also usually done in batches, or an operator wishes to optimize production by completing certain wells sooner rather than later.

DUCs proliferated during the coronavirus pandemic, when operators cut budgets but generally still paid to rent rigs. They used the time to drill wells but did not complete them because the market did not need more oil – but instead postponed well production to a time of higher oil and gas prices.

That’s what Chevron did, Wirth said.

“When we got back to work, the first thing we did was send out completion teams and start bringing the DUCs online” in late 2021 and early 2022, he said. “[That] maybe a little misleading in terms of growth rate because it was that kind of surge capacity.”

Chevron’s DUC inventory is now smaller and the company’s Permian production is now stabilizing at a more steady rate of growth, Wirth said.

“So we’ll probably be towards the lower end of the [output guidance] fork,” he said. “But we are not changing the forecast for this year or our forecast. »

Chevron plans to add three to four rigs in 2023, up from an estimated 10 at the end of 2022, to reach a target of about 1 million boe/d by 2025, Jefferies analyst Lloyd Byrne said. in an October 28 note to investors. Byrne said, citing a top business source, Permian inflation is hovering around 10-15% a year.

Chevron’s total production in the third quarter of 2022 averaged 3.03 million boe/d, flat with production in the same period a year ago, but up nearly 5% sequentially. Q3 2022 production includes 1.7 million bbls/d of net liquids production and 7.92 Bcf/d of natural gas.

For the third quarter of 2022, Chevron reported net income of $11.2 billion or $5.78 per share, compared to $6.1 billion or $3.19 per share in the third quarter of 2021.

ExxonMobil reported $19.7 billion or $4.68/share of earnings for the third quarter of 2022, compared to $6.75 billion or $1.57 in the same period of 2021.

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