London — Chevron CEO Mike Wirth on Oct. 13 defended the company's commitment to shale and said its upstream portfolio would remain weighted toward tight oil and gas, with fewer large, non-shale projects than in the past, while he acknowledged a less "enthusiastic" outlook for the shale sector generally.
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Speaking during the Energy Intelligence Forum, previously Oil & Money, Wirth said he did not foresee US crude oil production getting back in the next couple of years to its record highs of 13 million b/d before the coronavirus pandemic.
He also said the major's entry into Israel, with the recent purchase of Noble Energy, fit with a trend toward more cooperation in the region, apparently referring to recent diplomatic moves in the Middle East, as well as multiple opportunities to meet gas demand.
Wirth said shale had fundamentally reset Chevron's financial framework, noting the company had cut its annual capital expenditure from $40 billion in 2014 -- with no growth in the company -- to $20 billion going into the latest crisis in markets, and now closer to $12 billion, with the company on a growth path.
"From $40 billion to $12 billion a year [shows] incredible flexibility on capital, lower capital intensity, and we've got the ability to adjust our program to meet market conditions on a much more contemporaneous cycle," Wirth said.
"We found ourselves in the last decade with many multibillion-dollar, multiyear investments which were hard, challenging, and the industry's experience broadly was not good," Wirth said.
"We'll always have room for some of these large, long-cycle projects," he said, noting the challenges of an expansion project at the Chevron-led Tengiz field in Kazakhstan, which has been hit by cost rises and coronavirus outbreaks. Deepwater projects in the Gulf of Mexico that could be tied into existing infrastructure would also remain attractive, but stand-alone "greenfield" projects less so, Wirth said.
On "long-cycle" investments generally, he said, "We won't find ourselves weighted or over-weighted to those -- In the foreseeable future I think it will be quite the opposite."
"We'll continue to prefer a pretty significant weighting on shorter cycle things that frankly offer higher returns and more flexibility," Wirth said, noting Chevron's shale activity now extends to Canada and Argentina, which he said had become "increasingly competitive as we acquire the learnings."
When it comes to non-shale projects, "Number 1 is you do fewer of them so you can focus more attention on the ones that you're executing, you can have your very best people working on these," he said. "We've got to learn how to really scope things well and prepare well for execution on these."
Wirth acknowledged the change in investors' view of shale even before COVID-19, saying that looking ahead, "We certainly won't see an upturn in activity and the commensurate production response as we come out of this."
"Demand questions are weighing heavily on the market, the capital discipline that the industry has lacked is beginning to re-emerge."
"Investors are holding the industry accountable. You will see the eventual resumption of development in the US being done in a less enthusiastic way, a more disciplined way. I think that means a shallower growth curve.... Whether or not that gets back to 13 million b/d, I don't think it does in the next couple of years," he said.
Middle East realignment
Speaking after Chevron completed its purchase of Noble Energy, and as the Trump administration has promoted a diplomatic thaw between Israel and a number of countries in the Gulf region, Wirth said he saw strong prospects for the Israeli gas resources that came with the Noble purchase.
"We think it's a good quality resource in a good place. The trends in that part of the world seem to be towards more cooperation. It's not without challenges, its not without differences of opinion among certain countries, but in general the ties between countries are moving in a positive direction," Wirth said.
"These things aren't a straight line [but] we see a lot of positives to support the development of commercial ties between countries and energy can be a very important component of that," Wirth said, adding he saw opportunities for Israeli gas exports both by pipeline and as LNG.
"There is existing pipe infrastructure into certain markets," he said, referring to pipeline links to Egypt and Jordan. "There are LNG facilities that are not far from some of these resources that have capacity. I don't think it's an either-or. I think it's probably some combination of the two over time that we'll see as the pathway to markets and commercialization," Wirth said.