The future of production growth from the Permian basin rests in the hands, and budgets, of major oil companies with massive positions like ExxonMobil and Chevron, according to a pair of oil company bosses speaking at CERAWeek by IHS Markit. Ryan Lance, president and CEO of ConocoPhillips, and Scott Sheffield, president and CEO of Pioneer Natural Resources told attendees of the annual energy conference that the key to the Permian returning to its former, robust state depends greatly on the investment dollars allocated there by its biggest players.
“The big swing factor is what ... Exxon and Chevron do,” said Sheffield. “What do the big majors do? They retracted off their million-barrel-per-day targets. We retracted off on our million-barrel-per-day target about 3 years ago. So how do Exxon and Chevron allocate capital to the Permian? Right now, we're running 20 rigs. Those two majors now—one is running eight, one’s running three rigs. So that’s the biggest lead factor on how fast the Permian will grow over time.”
The Permian rig count floundered in 2020 as a result of the double whammy of record production and the global pandemic. Currently, the rig count in the region is roughly 200 units. The count most recently peaked in 2019 at around 500 rigs. Pioneer said it expects its Permian output to be flat in 2021 and sees overall US production holding at around 11 million B/D with very little growth in the future.
“I largely agree with Scott, I think it is going to be an issue of how you allocate to the lowest cost of supply resources in your portfolio to deal with the volatility in the commodity price,” said Lance. “I think the growth will get moderated. I hope there's discipline in the system. I think the worst thing that could happen right now is US producers start growing rapidly. I hope they give returns back to the shareholders.”
Of its planned $5.5 billion spend in 2021, ConocoPhillips will direct about $3 billion of that into US unconventionals following its $13.3-billion Concho Resources acquisition, which closed earlier this year and added 550,000 net Permian acres to its portfolio.According to Lance, the funds are being directed at those resources that can deliver less than $40/bbl costs of supply, because the operator believes that is what generates best returns of capital and returns on capital.
“Permian is producing about 4.3 million barrels of oil per day,” added Sheffield. “I'm a firm believer, it'll probably grow in that 5% per year, maybe 200,000 B/D per year. It could do that for several years. There [are] still 1,000s of [drilling] locations.”
Pioneer closed its own Permian acquisition this past January with the $7-billion buyout of Parsley Energy.The deal brought the combined entity’s holdings in the Permian to nearly 1 million acres.
By comparison, Chevron’s Permian holdings includes about 2.2 million acres, while ExxonMobil holds interest in roughly 1.6 million acres. The region’s largest player by acreage is Occidental, which holds around 3 million net acres.
