Last month, the U.S. Energy Information Administration (EIA) projected that overall domestic crude production would rise by 1 million barrels per day in 2022. With the International Energy Agency (IEA) estimating that global oil demand will rise by 3.3 million barrels per day this year, consumers are going to need all the added production they can get to avoid major increases in gasoline and other energy-related costs.
If U.S. energy giants ExxonMobil and Chevron have anything to do with it, the Permian Basin of Texas and New Mexico will play a big role in meeting the EIA’s target. On Friday, Chevron announced during its investor presentation that it plans to raise its Permian production by 10%, which would amount to another 60,000 barrels per day. Not to be outdone, Exxon detailed plans during its own presentation to raise its own Permian volumes by 25% in 2022, which would increase its overall output by 100,000 barrels per day.
The announcements by the two majors come as some of the big independent producers in the basin, including EOG Resources and Pioneer Natural Resources, said they are planning to limit their overall production growth to 5% or less in the basin. Chevron’s projected Permian increase comes in conjunction with plans to grow its capital budget by 50% during 2022, after a lean 2021. CEO Mike Wirth also told analysts that globally, the company’s production growth this year would average just 3%, pointing out that the Permian well economics are among the best in the world.
ExxonMobil’s plan for a 25% production increase in the Permian comes on the heels of 2021, when it was also able to raise its oil output by 100,000 barrels per day. Its’ announcement came as a part of its report of the company’s most profitable quarter in over 7 years, along with plans for a major reorganization designed to accelerate its recently-announced plans to reach net-zero carbon emissions by 2050. CEO Darren Woods also announced plans to relocate the company’s headquarters from Las Colinas to Exxon’s sprawling campus north of Houston this year.
Taken together, Chevron and Exxon control roughly 20% of overall oil production in the Permian. On January 18, the EIA projected that total Permian production will achieve a new record high of 5.076 million barrels per day this month. That production level would rank the Permian region as the 4th-largest oil producing nation on earth, behind only the U.S., Saudi Arabia and Russia.
America’s 2nd-largest oil producing basin according to the EIA, the Bakken Shale, produces just 1.192 million bopd, and the Eagle Ford Shale comes in third at 1.116 million. The magnitude of its potential resource, combined with its superior well economics, means that the Permian will be the centerpiece of any U.S. industry effort to help meet rapidly rising global crude demand. With many OPEC+ countries now having a hard time meeting their production quotas as they run low on excess capacity, U.S. shale could once again become a key swing producer in the global supply mix.
The willingness of Exxon and Chevron to buck the desires of ESG investors and commit so much capital to raising their Permian production levels is commendable. For consumers’ sake, hopefully other big U.S. producers will follow their example.
