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Chevron eyes more than 600,000 boe/d output from Permian by end-2021

Highlights

Plans to add two Permian rigs in H2 2021

Permian output was 577,000 boe/d in Q2

Company activity rises in deepwater US Gulf

Chevron's Permian Basin volumes and activity are ticking up in second-half 2021, with plans to exceed 600,000 boe/d of production in the West Texas/New Mexico play by year-end, a top company executive said July 30.

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Chevron has five drilling rigs in the Permian, Jay Johnson, Chevron's executive vice president for upstream, said during the company's second-quarter earnings conference call. That is down from 20 rigs in mid-2019, several months before the coronavirus pandemic began.

"And, we expect to add at least one or two more in late third quarter and fourth quarter," Johnson said. "We did add an additional [well] completion crew in July, and expect to add another one before year-end."

The company produced 577,000 boe/d from the unconventional Permian in Q2 2021, compared to 547,000 boe/d in Q1 – mostly the result of lower output after a brutal winter freeze in February.

Chevron scaled back activity after the pandemic began in late Q1 2020, and has maintained a lower level of activity since then.

Permian efficiency improves

However, even with lower but consistent Permian activity, "the efficiency is getting better [and] we're actually getting more output from those reduced levels," Johnson said, but declined to give further output guidance for the basin.

Chevron had exceeded its current year-end target in fourth-quarter 2020 with 611,000 boe/d, but production fell off again in Q1 2021 from the harsh winter weather.

The company recently said it's looking to sell its legacy conventional Permian segment. Chevron has been active in the basin for nearly 100 years.

At present it is returning to "factory drilling [in the play], rather than focusing on lease retention as we were over the last 18 months or so," Johnson said. "I think the Permian is going to continue to be a critical asset in our portfolio."

On July 29, the major announced the creation of Chevron New Energies, a new organization aimed at building fast-growing, profitable new energy businesses to further advance a lower carbon future, Chevron Chief Financial Officer Pierre Breber said.

"The announcement ... was really focused on hydrogen [and] carbon capture," Breber said, since another large goal of the company's low-carbon operations – expansion in renewable fuels – falls under the downstream umbrella charged with producing renewable natural gas and renewable diesel.

For example, in Q2 Chevron started production of renewable diesel at its El Segundo, California refinery by co-processing bio-feedstock. The company also set up its first branded compressed natural gas (CNG) station, with plans to sell renewable natural gas through more than 30 CNG stations in California by 2025.

Also in Q2, Chevron announced separate agreements to collaborate with Toyota Motor North America and Cummins Inc. to advance development of a commercial large-scale hydrogen business.

In addition, Chevron is getting more active in US Gulf of Mexico where it is one of that region's largest leaseholders and operates several large fields such as Tahiti, Jack/St Malo and Big Foot, he said.

"It has a very low carbon footprint, and it tends to have high returns," he added.

Expect Ballymore FID in 2022

The major is also developing the deepwater Ballymore discovery as a subsea tieback to the company's existing Blind Faith hub offshore Louisiana, Johnson said. Ballymore recently began front-end engineering and design; a final investment decision is expected next year.

Also, fabrication of the Anchor deepwater project, sited 140 miles off the Louisiana coast, is proceeding, with assembly of the production facility hull underway, Johnson said. And Shell recently greenlighted the Whale deepwater project in remote Alaminos Canyon not far from Mexican territorial waters, where Chevron is a 40% partner.

Whale, which Shell operates with a 60% stake, will utilize a production facility nearly identical to that company's Vito development, which reduces costs. Whale, slated to come online in 2024, will have peak production of 100,000 boe/d.

Johnson said Chevron has focused its US Gulf leasing in recent years on wells that can be easily hooked up to its existing infrastructure.

"If we find something that ends up really big and justifies a greenfield development, we can go the route of a Whale project, where we ... focus on the minimum development, building facilities that are replicative in nature" and utilize past learnings, he said.

Chevron reported worldwide production of 3.1 million boe/d, up 5% year on year and flat sequentially. Its liquids production in Q2 averaged 1.847 million b/d, up 1% both year on year and sequentially.

Higher liquids production stemmed from an increase of 227,000 b/d following the company's Noble Energy acquisition in October 2020 and lower production curtailments, although the gains were partly offset by a 68,000 b/d decrease from the company's US Appalachian asset sale and normal field declines.

US liquids production totaled 857,000 b/d, up 15% from Q2 2020 and up 7% sequentially.

Improved market conditions in Q2 2021 versus the same period a year ago, coupled with merger synergies from the acquisition of Noble Corporation since the transition closed in late 2020, led to earnings of $3.1 billion, or $1.60/share. That compares to a loss of $8.3 billion or $4.44/share in Q2 2020.

Refinery throughput worldwide totaled 1.536 million b/d in Q2, against 1.170 million b/d in Q2 2020. Q2 gains came mostly from the US as the company increased refinery runs in that arena from higher demand and an improved refining margin environment.