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ExxonMobil to scale back in Permian
PERMIAN BASIN
EXXONMOBIL unveiled plans last week to reduce the number of rigs it operates in the US’ prolific Permian Basin. The announcement notably came before the collapse of the OPEC+ talks sent crude prices tumbling, illustrating that the super-major’s Permian plans were already under pressure from slowing demand.
“We all know today [that] oversupply, driven by industry investments in some of these growth markets, has exceeded demand, and we’ve got a very challenging short-term margin environ- ment which is now being compounded by the growing economic impact of the coronavirus that we’re seeing around the world,” ExxonMo- bil’s CEO, Darren Woods, said on March 5 at the New York Stock Exchange (NYSE). “And that is creating a lot of uncertainty, particularly in the near term, and I would say particularly here in Wall Street. However, the longer-term horizon is clear, and today our focus is on that horizon and the future.”
The company has not yet commented on the dramatic change for the worse in market condi- tions, so whether it will make further changes to its plans is unknown – but would not be surpris- ing. Indeed, Goldman Sachs said in a note this week that while Chevron and ConocoPhillips would be better prepared to handle the shock, ExxonMobil could be forced to cut spending on exploration and new production, both in the Permian and offshore Guyana.
Until an update is issued, however, the company can be assumed to be pursuing its recently revised plans. Woods said last
week that ExxonMobil anticipated its capital expenditures to be $30-35bn this year, but likely towards the bottom half of that range. The company had previously expected its capex to be in the top half of that range. The heaviest spending cuts are due to be made in the Permian’s Delaware sub-basin.
“We anticipate reducing the number of rigs in 2020 by more than 20% this year versus where we are today,” ExxonMobil’s senior vice-pres- ident, Neil Chapman, said of spending in the Delaware.
ExxonMobil has trimmed back its Permian output forecast for this year to 360,000 barrels of oil equivalent per day (boepd), down from 380,000 boepd previously. However, the com- pany said it remained on track to produce more than 1mn boepd from the basin in 2024.
The super-major is using cube development in the Permian, which it says is a capital-efficient method that taps several shale layers simultane- ously and differentiates it from its competitors. Despite scaling back in the short term, Exxon- Mobil said its Permian well costs and perfor- mance had continued to improve.
ExxonMobil and Chevron have both dou- bled down on the Permian, particularly over the past year, as independent producers have slowed activity. With some independents having announced cuts to Permian activity in response to the price crash already, the super-majors could be better-positioned than many smaller players in the basin to ride out the storm, even if they also have to scale back operations.™
Despite scaling back in the short term, ExxonMobil said its Permian well costs and performance had continued to improve.
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