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Shale Oil Production Offers Positive Talking Point For Chevron

Jennifer Warren profile picture
Jennifer Warren


  • Oil production from the Permian Basin is forecast to be 10% higher than earlier estimates.
  • Chevron, and a very few other Majors, have fared better than most E&P firms in the industry's current malaise.
  • Timed in a conservative manner, technological advances and applying best practices have allowed Chevron to leapfrog other peers.

Super majors like Chevron (NYSE:CVX) and ExxonMobil (XOM) have weathered the oil and gas industry beatdown better than most. One bright spot for Chevron is their unconventional production. Actually, Chevron's Permian shale oil strategy is exceeding their plans announced since their Analyst Day this spring. Chevron still projects 3.1 million barrels/day production by 2017. Unconventional production increased in the Permian and Argentina's Vaca Muerta by 40,000 barrels per day.

Since their last Analyst Day, Chevron has increased its outlook for Permian production. (See "3 Shale Basins" article.) Recent comments by the Chevron North America E&P President Shellebarger relayed their value proposition in the Permian:

We are employing a disciplined, value-focused development strategy in the Permian. We are not in a drill or drop situation, and our low lease holding costs allow us to focus on the highest return projects in a paced matter while leveraging industry learnings. Our efforts on lowering cost while simultaneously increasing production rates and ultimate recoveries are helping to improve overall well and program economics.

Chevron expects that 2014 Permian unconventional production will be more than 10% higher than initially forecast, thus their long-term unconventional production growth continues to become more steep:

Source: CVX presentation 3Q2014

In comparing this chart to the earlier projections, the production from the Central Basin Platform is excluded. This is some of their legacy "Permian Base" production included in the Analyst Day presentation (chart in earlier cited article and below). From comparisons between charts, base production comprising about 10 rigs grows to around 50 rigs, with about 40 rigs in the Midland and Delaware Basins of the Permian. (The Permian Basin is made up of Midland, the Central Basin Platform and Delaware.) Currently they have 18 active rigs in the Midland Basin and 11 in the Delaware, for approximately 370 wells and 180 wells in 2014, respectively. In the Midland Basin, production increased by 15,000

This article was written by

Jennifer Warren profile picture
Jennifer's areas of expertise include energy trends —their economic and geopolitical implications—and resource sustainability issues. She considers her investment approach eclectic, drawing from a multidisciplinary pool of work. Lately, she is working on market making in an impact area, trying to match capital to beneficial projects. With partners, she works from the ground-up through to a final end game, with some projects that are enduring or long-lived.Other interests include the energy transition, the impact of shale oil and natural gas, climate change, clean and efficient infrastructure, China, India, and the energy-water-resources nexus—all interrelated in various ways. Her work has been published in various academic, policy and business publications such as Far Eastern Economic Review, Economist Intelligence Unit’s Executive Briefing, Journal of Structured Finance, Lloyd's List, D CEO, Energy Trends Insider, Financial Sense, and many others. From Dec 2010 to April 2013, she was the CEO/President of a global affairs organization focused on cutting edge geopolitical and macroeconomic trends. She organized and moderated panels on global gas, energy security, energy infrastructure finance, and urban development. She has a master's degree from London School of Economics, and bachelor's in finance/marketing. She is principal of Concept Elemental, a strategic communications consultancy focusing on knowledge work, and includes over fifteen years of financial services industry work. She works with a top University, "translating" cutting edge research as well.Recent interview:https://podcasts.apple.com/us/podcast/wednesday-may-10-montana-world-affairs-council/id1511606812?i=1000612517083

Analyst’s Disclosure: The author is long OXY. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (18)

Frank T. Kryza profile picture
Hi Jennifer. I loved this piece and posted it in LinkedIn. If I learned anything in my two decades at Atlantic Richfield, it was never to underestimate the resilience of America's big oil companies. For years, they have had a better "foreign policy" than the State Department, and now they have rediscovered the resources available right here at home. Chevron is truly a great company, as is Exxon/Mobil. The next twenty years surely look very different from an energy standpoint than they did before the shale revolution. I am very interested to see how much of this gas ends up as methanol, a subject rarely discussed. Frank
Jennifer Warren profile picture
Thanks FTK! It will be quite interesting to observe and analyze.
Craig Cooper profile picture
Forest made a number of strategic errors during the past 15 years or so that have nothing whatsoever to do with shale E&P. Their failure is one of poor leadership & management rather than pursuit of reservoir types.

Most others are nicely viable, even at lower oil prices.
Jennifer Warren profile picture
Thanks for answer Craig. For PXD, they note: "even in the $70 to $80 oil environment, we're looking at returns in the neighborhood of 40% to 80%."

There are always bad cases and good cases in any industry...
Jason Z. Wu profile picture
How about the write-offs?
Jason Z. Wu profile picture
Thanks for the insightful article. From what I understand, the shale oil and gas producers are NOT making any money (at least at current prices). Take a look at FST, which has been around over 100 years. It is heading to Chapter 11 after it went shale. I know there are better areas and more efficient players, but the sheer size of the write-downs (BHP, RDS, etc. totaling north of $35 billion) really raises some concerns. How would you address the economics of shale? Thanks, Jason
Jennifer Warren profile picture
Since this was Delaware Basin, a good peer to look at is Concho, a Delaware Basin heavyweight. CXO's S. Delaware Basin results neared the 1000 30-day IP mark, but these wells were Wolfcamp A/B and Bone Springs intervals.

On the Northern Delaware side, they cited 800s from the Avalon interval. CVX reported from their Upper Avalon intervals wells in Lea County.

For a good understanding of the results, see PXD's IR presentations, they represent the Midland Basin quite well, and report their results in detail.

If you have a PRO subscription you can read this CXO article I wrote in the spring.

Jesse Bellet profile picture
Jennifer-great article. You mentioned that CVX is seeing "30 day IP's" in the Permian. How does that compare to other producers in the Permian?
labard profile picture
Thank you for this article, Ms. Warren. I am overweight energy and thus the past few weeks have been very disheartening. Re CVX's beginning to recover, I note that energy is up big across the board today. But why? And do you think we've seen the bottom? Nothing has changed that I know of vis a vis the Saudis; is it that the election results make it more likely that Keystone will be built ?
Jennifer Warren profile picture
WTI rose a bit. Unless you did something that market's would penalize, like an earnings miss or a stock offering, you were rewarded, so it seemed. A little pro-business lift post-elections too.

Mad Stacks profile picture
Jennifer writes very professional articles that are difficult to dispute. Thanks again.

Maybe she should try saying something wrong for more page views and comments? ;)
Jennifer Warren profile picture
;) I try to be reasonable, and know that webpages live on, even after we do not. The next generation of family members might suffer my indulgences!

moseharper profile picture
I am hoping today's uptick in oil prices is a similar move reflective of that that has occurred after the recent dip and rebound in stocks. CVX is indeed a jewel of the oil industry, well situated to bide it's time so as to perform in the best interests of it's shareholders. Good article- and long CVX.
Jennifer Warren profile picture
They are really in a lot of the right spaces...Thanks!
Dr Joseph Haluska profile picture
Jennifer/Ms. Warren, great article on CVX, and OXY too. We are very lucky to have you here on SA. Thanks for making it understandable for those of us without a formal business education. I am looking forward to following you closely!
Jennifer Warren profile picture
Appreciate that Dr. J. Haluska. I'll do my best.
Jennifer Warren profile picture
WillGen1 profile picture
Thank You for the good news about Chevron and thank you for the article!
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