West Texas riches
Producers say they can make money there if oil’s between $40 and $50
Chevron is counting on the Permian Basin for success during the rebound.
“Permian will get the first call.” Patricia Yarrington, Chevron Corp. chief financial officer
Chevron Corp.’ s sprawling portfolio includes massive deep-water platforms, multibillion-dollar gas facilities and foot holds in dozens of countries.
But Chevron’s future has become closely tied to a single region: the prolific Permian Basin, where the company spends $1.5 billion annually and expects to increase investments in coming years.
“We’re not looking to take all activity down to the Permian,” chief financial officer Patricia Yarrington recently told analysts. But “Permian will get the first call.”
Chevron’s focus onthe Permian Basin, which Yarrington described as “an abundance of riches,” marks a strategy shift for a company that for years has developed much bigger projects, putting billions of dollars into large-scale liquefied natural gas projects in Australia and giant deep-water facilities in the Gulf of Mexico. It also adds to the recent drilling boom in the WestTexas oil field, considered among the most productive and efficient in NorthAmerica.
The rush to the Permian has followed the rise in oil prices, which recently topped $50 a barrel, after plunging to a low about$26 in February. Crude last week slid to about $45 a barrel.
While drilling activity has languished in many U.S. shale plays such as the Eagle Ford in South Texas, where oil is more expensive to extract, producers have rushed into the Permian, where they say they can make money at prices between $40 and $50 a barrel. Since the U.S. rig count bottomed in May, about 80oil rigs have started up again, accounting for about two-thirds of all rigs that have returned to operations in the U.S.
Chevron executives said the company has essentially built a “well factory” across 2 million acres in West Texas and New Mexico, which means it is drilling wells with the same design features over andover again. This approach could lift oil production in the Permian as much as 200,000 barrels a day bythe endofthe decade, said Bruce Niemeyer, vice president of Chevron’s midcontinent business unit.
The company deployed five rigs to the Permian in the first half of this year, but it reduced its development costs there 30 percent, Niem eyer said. Chevron earned an overall profit of $1.3 billion in the three months from July to September, its first quarterly profit in a year.