ExxonMobil and Chevron each foresee a bit lower respective Permian Basin production profiles for 2022 than earlier stated, although both are still running high volumes of several hundred thousand barrels a day apiece of oil equivalent, the majors’ CEOs said in separate third-quarter earnings calls Oct. 28.
ExxonMobil, which during much of 2022 had touted 25% growth in the West Texas and Southeast New Mexico basin this year above 2021’s average 460,000 boe/d of output, has reduced the growth target to about 20%, CEO Darren Woods said in webcast remarks.
Chevron expects its Permian production growth profile to tilt toward the low end of its earlier 700,00 boe/d to 750,000 boe/d guidance, CEO Mike Wirth said during his earnings call.
While the CEOs offered varying reasons for lowered expectations, analysts note ongoing supply chain and labor shortages as current big obstacles to output growth.
“The entire industry is suffering” from those constraints, Reed Olmstead, executive director of research analysis for S&P Global Commodity Insights, said. “Costs for new labor (needed to increase rig counts and frac crews) are skyrocketing, turnover is huge. Labor is a real challenge.”
Equipment is ‘run … hard’
“Second … equipment is being run super-hard, so maintenance costs are rising, 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 about 552,000 boe/d, compared to the 575,000 boe/d that would have resulted from a 25% year-on-year growth rate, Woods said. He added in 2021, ExxonMobil did achieve a 25% Permian growth rate.
Woods said one of ExxonMobil’s challenges in the Permian is maximizing recovery of its large resource base in the basin.
“We’re [making sure] we are doing that in the most cost-advantaged way,” he said. “Obviously … we’re optimizing and adjusting our development plans. That continues to be the case.”
In Q3, ExxonMobil produced a record 560,000 boe/d from the Permian. That was part of its 3.72 million boe/d of total oil and gas output in Q3 2022, up from 3.67 million boe/d during the same quarter in 2021.
ExxonMobil’s Q3 2022 production included 2.4 million b/d of oil and 7.9 Bcf/d of natural gas.
Chevron produced 708,000 boe/d in Q3 2022 from the Permian, Wirth said, adding that is up about 15% from the first three quarters of 2021 which was “just a touch” over 600,000 boe/d. He noted the company produced 646,000 boe/d from the Permian in Q3 2021.
DUCs’ role in output variances
Wirth suggested that besides supply chain issues, the number of drilled but uncompleted wells, commonly known as DUCs, also may have thrown off Chevron’s Permian guidance.
DUCs have been awaiting completion for weeks, months or often years, for many reasons: the operator doesn’t want to produce its high-volume wells into a low-priced market, or the E&P company was drilling wells in batches, and hadn’t yet begun to complete the wells, which is also usually done in batches, or an operator wants to optimize production by producing certain wells sooner than later.
DUCs mushroomed during the coronavirus pandemic, when operators slashed their budgets but typically were still paying to lease rigs. They used the time to drill wells but did not complete them since the market did not need more oil – but instead deferred well production to a period of higher oil and gas prices.
That is what Chevron did, Wirth said.
“As we went back to work, the first thing we did was send completion crews out and start to bring the DUCs online” in late 2021 and early 2022, he said. “[That] may have misled a little bit in terms of the rate of growth because this was this kind of surge capacity.”
Chevron’s DUC inventory is now more modest, and the company’s Permian production is now leveling out to a more steady growth rate, Wirth said.
“So we likely will be towards the lower end of the [output guidance] range,” he said. “But we’re not changing guidance for this year or our forward guidance.”
Chevron plans to add three to four rigs in 2023, up from the estimated 10 at year-end 2022, to achieve a roughly greater than 1 million boe/d target by 2025, Jefferies analyst Lloyd Byrne said in an Oct. 28 investor note. Byrne said, citing a top company source, that Permian inflation is running at about 10% to 15% annually.
Chevron’s total Q3 2022 production averaged 3.03 million boe/d, flat with the same period’s year-ago output, but up nearly 5% sequentially. Q3 2022 production includes 1.7 million b/d of net liquids output and 7.92 Bcf/d of natural gas.
For Q3 2022, Chevron posted net earnings of $11.2 billion or $5.78/share, compared to $6.1 billion or $3.19/share in Q3 2021.
ExxonMobil reported $19.7 billion or $4.68/share of earnings for Q3 2022, up from $6.75 billion or $1.57 in the same period in 2021.
