Houston — A return to oil production growth in the Permian Basin during the next few years will largely depend on how the major oil producers there, particularly Chevron and ExxonMobil, pace their activity in the West Texas and southeast New Mexico play, Pioneer Natural Resources CEO Scott Sheffield said March 2.
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The basin's oil production is capable of growing 5%, or 200,000 b/d, per year, said Sheffield in a panel discussion at the CERAWeek by IHS Markit energy conference.
"It can do that for several years," Sheffield said. "A big factor is what majors like ExxonMobil and Chevron do."
The Permian Basin, the largest oil reservoir in the US, currently produces around 4.18 million b/d and about 12 Bcf/d of natural gas, according to S&P Global Platts Analytics.
Still, that is down from a little under 5 million b/d in January 2020 due to lower demand stemming from the coronavirus pandemic.
Pioneer, which is nearly a pure-play Permian operator, closed its acquisition of Parsley Energy in January, bulking up its already large size in the basin. The combined company is now running 20 rigs, Sheffield said – nearly 10% of all the rigs in that basin.
But ExxonMobil and Chevron have pulled back considerably, Sheffield said. ExxonMobil currently has eight rigs in the basin, versus 57 in first-quarter 2020, while Chevron is at five rigs, down from 17 in from Q1 2020.
Big factor in Permian growth
"They're a big factor in how the Permian will grow over time," he said.
A few years back, those two majors had set aggressive Permian oil growth targets to achieve before the mid-2020s. Chevron aimed at hitting 900,000 b/d by the end of 2023 and ExxonMobil projected it would clock in at 1 million b/d in the basin by 2024.
And Pioneer, under a different CEO, had also set a target of 1 million boe/d of oil and gas production by 2026, which would have included 700,000 b/d of crude. In 2016, just before the target was set, Pioneer produced an average of 133,000 b/d of oil.
However, Sheffield, who had retired at the end of 2016 as founding CEO of Pioneer after nearly 20 years, returned to the company's helm in 2019 and set a more modest growth target in line with industry's concern at the time about the perils of double-digit production growth. Instead, calls for greater shareholder returns and capital discipline were emerging that would lure back investors who had fled the sector.
But a more ominous threat would bring the lofty output figures planned by Chevron and ExxonMobil, and others, to a screeching halt as the pandemic quashed oil demand. Even with oil prices currently around $60/b, a flat to modest-growth production mentality has taken hold to the point that producers say they are making plenty of cash to not only fund their budgets but to return hefty amounts they earn to shareholders.
Returns 40% of cash to investors
For example, in the same CERAWeek panel, ConocoPhillips CEO Ryan Lance said his company returns 40% of its cash flow to shareholders.
"We as an industry can't do what we did over the last decade and expect investors to come our way," said Lance, referring to the high-production growth mentality during the shale oil boom, when US production was growing some years at more than 1 million b/d.
"There's uncertainty on demand and supply coming back, but the Permian has some of the lowest-cost reserves and the lowest greenhouse gas emissions," Lance said.
Besides rewarding shareholders, producers should allocate capital only to the lowest-cost plays, he said. ConocoPhillips's sources of supply are less than $40/b, he said.
ConocoPhillips closed its acquisition of Concho Resources in January which more than quadrupled its production in the Permian to around 400,000 boe/d.
In Q4 2020, just before closing the transaction, ConocoPhillips produced 88,000 boe/d from the Permian.