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US heavyweights keep up Permian push

ExxonMobil and Chevron step up expansion programmes in major shale arena

US supermajors ExxonMobil and Chevron are pushing ahead with expansion programmes that could see the duo producing close to 2 million barrels of oil equivalent per day between them from the prolific Permian basin of Texas and New Mexico by 2024.

ExxonMobil is forecasting its expansion programme will see it hit production of 1 million boepd by 2024, while its San Ramon-based counterpart is predicting output of 900,000 boepd by 2023

ExxonMobil has 51 rigs active in the basin, about 29 in the Delaware and 22 in the Midland, senior vice president Neil Chapman told investors on a second-quarter conference call late last week, adding that the company expects to hit its target of about 55 units by the end of the year. It also has 12 frack crews at work.

The area also drove major increases in production for the company, with output from the core shale basin helping push total liquids production up 8% to 2.39 million barrels per day from 2.21 million bpd.

The Permian’s influence helped lift US liquids production to 662,000 bpd from 543,000 bpd over the year, with total output from the region standing at 274,000 boepd in the second quarter, according to a company presentation, with the growth largely ahead of analyst estimates.

Chapman also tipped some details of the company's development planning, saying the strategy would focus on drilling out multiple horizons at one time to avoid communication between benches.

"We’re going to have, particularly in the Delaware, these long corridors of multiple pads," he explained.

"We’re going to drill multiple benches at one time, move those drilling rigs down the corridor, bring in the frack crews, frack them, and then you’ll see as it moves to production."

The intensive capital spending showed up on the company’s balance sheet for the quarter, with capital and exploration expenses leaping 22% to $8.08 billion from $6.63 billion, with outlay in the Permian driving the rise.

Chapman reiterated that the company believes its size, scale and financial strength gives it a key advantage when it comes to scaling up, adding that its spending outlay is on target for the year.

He added that the company is attentive to concerns about well spacing within massive factory development plans, particularly as Concho Resources admitted last week that spacing at its Dominator project was too tight.

“We haven’t taken that approach, our spacing is not as tight as that,” he said

Meanwhile, Chevron also said its operations were going to plan in the region, where it predicts a steady rig count will allow it to reach its 900,000 boepd target in 2023.

Chevron reported that Permian output stood at some 421,000 boepd in the quarter, up 55% or 150,000 bopd, compared to the same period last year.

“We're optimising our Permian factory and maintaining our focus on delivering industry-leading returns,” Chevron upstream executive vice president Jay Johnson said.

“We continue to drive higher EURs (estimated ultimate recoveries) by optimising well spacing, landing zones, and completions.

"The average lateral length of our wells continues to increase and is expected to approach 10,000 feet next year as we execute our core-up strategy for our development areas.”

The company said it expects to be free cash flow positive in the area by next year, and continue to grow free cash flow thereafter, with earnings expected to strengthen and exceed $4 billion in 2023.

Chevron has about 20 operated rigs in the basin, as well as involvement in about 30 gross non-operated rigs, working out to between seven and 10 net non-operated units.

The company also said it was managing midstream takeaway issues, with sufficient volumes for crude fully covered for this year and next.

It also has sufficient gas capacity for basic flow assurance in the basin that allows for production without having to flare or shut in production.

About 20% of the gas at present has a path for exports, a figure that the company expects to see rise to 25% by the end of the year, Johnson said.

“By the end of next year we should be more like 60% of our gas being exported from the basin (which) gives us more exposure to other price structures,” Johnson said.

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