NOTEBOOK Can Chevron, other majors take Permian to next level?
Chevron Corp. has owned land and leases in the Permian Basin for 100 years. In the 1980s and 1990s, when the basin was deservedly viewed as dried-up, Chevron stayed.
It almost didn’t, though. At times, when the company needed to cut costs, its old Permian land came up. But some Chevron chiefs cautioned against selling. They knew the shale held a lot of oil and someone would figure out how to get it out of the ground.
Fast-forward two decades: Chevron is neck-deep in the Permian, and that old land is playing a key role. While independent oil companies were out drilling, the California major was watching, and co-developing sections with other companies. Some say the majors missed the boat. Chevron says the delay was good for a few reasons.
First, it was getting paid. Thanks to its $45 billion merger with White Plains, N.Y.-based Texaco in 2001 and its $18 billion purchase of Los Angelesbased Unocal Corp. in 2005, it controlled about 2 million acres of Permian drilling rights. And, for much of that land, it actually owned the mineral rights. That meant its partners were paying Chevron for the rights to drill.
“Their strategy has been to take the royalties and let everyone else take the risk,” said IHS Markit analyst Sven Del Pozzo.
A huge haul
Perhaps more importantly, co-developing the land put Chevron on the metaphorical rig floor in each of those projects, allowing the company access to data, operations, technique and everything else its partners were learning — at little cost to Chevron.
In 2014, Chevron began to develop on its own. In 2016, it stepped on the gas. Last year, it talked about a “manufacturing” model for drilling.
This year, it will spend $3.3 billion on its Permian program, running 20 rigs — among the most in the basin — by year’s end, and promising a huge haul, as much as 700,000 barrels of oil and gas per day in a decade.
“I’ve heard people say the majors missed it,” said Bruce Niemeyer, vice president of Chevron’s North America Exploration and Production. “It’s worked to our advantage to let the rest of the industry figure it out.”
‘The early innings’
Analysts are not entirely sold on Chevron’s claims.
“Chevron has a lot less experience than everyone else,” said Del Pozzo. “They’re just getting started. The number they’re throwing out 10 years from now is huge. But they still need to do it.”
Others, however, say Chevron and other big oil companies have time to catch up.
“Anyone who said the majors are late to the game, you have to understand this is a multi-decade inventory,” said Jackson Sandeen, a former Permian analyst for the energy research firm Wood Mackenzie. “In that, we’re still in the early innings.”
The independent oil companies were great at trial-and-error experimentation, said Tommy Inglesby, managing director of consulting firm Accenture’s energy industry group. But well production has been plateauing and experimentation hitting a limit without more science. That puts the majors in a position to lead.
The majors will take more time and apply more science, data analysis and integration, said Vance Scott, senior managing director at the accounting and consulting firm Ernst & Young.
“I’m not sure it’s in the mindset or style,” Scott said, “of some of the independents.”
“It’s worked to our advantage to let the rest of the industry figure it out.” Bruce Niemeyer, vice president of Chevron’s North America Exploration and Production