(MENAFN- Baystreet) Profits at ExxonMobil and Chevron have dropped compared to the record-highs of the past two years, but the U.S. supermajors are doubling down on oil production from the two most prolific growth basins, the Permian shale patch and a top-performing block offshore Guyana.
Both Exxon and Chevron plan to further boost their footprint and oil production in the U.S. and the South American country. Until a few months ago, the key growth driver was higher drilling activity and improved efficiency in the Permian. Now, major acquisitions worth more than $50 billion for each of the two supermajors are set to add to organic growth and further boost their oil production from the world's premier growth basins.
Permian Growth
As Exxon and Chevron wait for regulatory clearance and arbitration to finalize their megadeals, the oil and gas giants raised production from the Permian basin in West Texas and New Mexico during the first quarter of the year.
Exxon reported last week underwhelming earnings for Q1 that were lower than consensus estimates, due to declining natural gas prices and non-cash adjustments.
Production growth in what Exxon calls "advantaged assets," including Guyana and the Permian partially offset weaker natural gas realizations.
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"Since 2019, we've more than doubled production volume in the Permian," Exxon's CFO Kathy Mikells told analysts after the results release.
Thanks to the Permian and other advantaged assets such as Guyana, Exxon has almost doubled its upstream unit profitability at constant prices from $5 per oil-equivalent barrel in 2019 to $9 as of the first quarter of 2024. The supermajor expects unit profitability to jump further to $13 per oil-equivalent barrel by 2027.
Unit earnings from the 'advantaged assets' are expected to be $9 per barrel higher than the base portfolio by 2027 at constant prices, Mikells said.
The growth in advantaged assets is a real key driver in terms of overall growth in Exxon's upstream business and a key driver of earnings growth, she said on the earnings call.
Exxon is set to become the top Permian producer soon as it continues to expect that the U.S. antitrust authority will give the green light to its proposed $60-billion all-stock acquisition of Pioneer Natural Resources by the end of the second quarter.
Announcing the acquisition of Pioneer, Exxon said in October 2023 that the proposed transaction "transforms ExxonMobil's upstream portfolio, more than doubling the company's Permian footprint and creating an industry-leading, high-quality, high-return undeveloped U.S. unconventional inventory position." At close, ExxonMobil's Permian production volume would more than double to 1.3 million barrels of oil equivalent per day, based on 2023 volumes, and is expected to increase to approximately 2 million boepd in 2027.
The Permian has been a key driver of production growth at Chevron, too. The supermajor booked slightly higher earnings for the first quarter than analysts had expected, thanks to higher oil and gas production that offset part of the weaker refined product margins and low natural gas prices.
Chevron's worldwide production was up 12% from a year ago, primarily due to the acquisition of PDC, strong operational performance in the Permian and DJ Basins in the U.S., and the Tengizchevroil affiliate in Kazakhstan.
This year, Chevron expects its Permian production to rise by another 10%, following 10% growth last year, it said in its 2024 production outlook. The energy giant is on track to achieve 1 million boepd Permian production in 2025. Since 2019, Chevron has seen a 60% improvement in its execution performance in the Permian. Longer term, the company has more than 15 years of inventory to produce more than 1 million boepd from the basin.
Q1 2024 production in the Permian was 859,000 barrels a day, down about 1% from the fourth quarter of last year, but was "stronger than what we had anticipated," CEO Mike Wirth said.
Guyana Plans
Chevron is also looking to gain exposure to another hot oil production area-offshore Guyana, via the proposed acquisition of Hess Corporation, which is Exxon's partner in the offshore Stabroek block that pumps about 600,000 bpd of crude oil.
Apart from regulatory clearance, Chevron and Exxon are in an arbitration case over whether Exxon has the right to first refusal of Hess's stake in Stabroek.
"The merger with Hess is advancing, and we intend to certify substantial compliance with the FTC second request in the coming weeks. We believe that a pre-emption right does not apply to this transaction and are confident this will be affirmed in arbitration," Chevron's Wirth said on the conference call.
Exxon, for its part, has filed for arbitration to confirm its rights and establish the value that the Chevron/Hess transaction places on the Guyana asset. All this came as the supermajor approved a sixth project, Whiptail, offshore Guyana, with a planned start-up by year-end 2027.
"It's remarkable to think that within eight years of first oil, Guyana will have a production capacity of more than 1.3 million barrels per day," Exxon's CEO Darren Woods said, adding, "I believe Guyana will go down as one of the most successful deepwater developments in the history of the industry."
While the U.S. supermajors continue to raise their oil production, including via major acquisitions, their European peers have only recently pivoted back to boosting oil and gas production after several years of trying to convince shareholders that spending on renewables would pay off-and failing. After the energy crisis, Shell, BP, and TotalEnergies are back to raising oil and gas output, but the U.S. supermajors are far ahead in production growth and plans, thanks to the Permian and Guyana.
By Tsvetana Paraskova for Oilprice
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