Exxon, Chevron Unveil New Spending Plans

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Researched by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--Both Chevron Corporation (NYSE:CVX) (San Ramon, California) and Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas) unveiled spending plans that, in theory, could provide tailwinds to U.S. shale oil production at a time of ongoing supply-side concerns.

Exxon plans to spend between $20 billion and $25 billion through 2027, with more than 70% targeting developments in the Permian Basin and offshore Guyana and Brazil.

"By 2027, upstream production is expected to grow by 500,000 oil-equivalent barrels per day (BBL/d) to 4.2 million oil-equivalent BBL/d, with more than 50% of the total to come from these key growth areas," the company said in a press release.

Energy companies have come under criticism for returning more of their profits back to shareholders, rather than investing in new upstream developments that could eventually ease some of the inflationary strains coming from higher energy prices.

"Record profits today are not because they're doing something new or innovative," U.S. President Joe Biden said in October. "The profits are a windfall of war."

The price for Brent crude oil, the global benchmark for the price of oil, was trading in the lower $90-per-barrel range at the time. Lingering fears of a global recession have since pushed the price far lower, to the mid-$70s range, though those prices are still contributing to record-level inflation.

Many analysts, meanwhile, see the price cap on Russian crude oil and a moratorium on waterborne crude from Russia in the European Union as a catalyst to triple-digit oil, which would in theory only boost the profits, and subsequently the spending plans, of major oil companies even further.

"Our five-year plan is expected to drive leading business outcomes and is a continuation of the path that has delivered industry-leading results in 2022," Exxon's Chairman and CEO Darren Woods said.

Exxon said its near-term investment strategy for upstream, meanwhile, should keep production at about 3.7 million barrels of oil equivalent per day, as long as Brent holds above $60 per barrel.

Chevron, meanwhile, said it would spend $14 billion next year, with most of that--some $8 billion--targeting U.S. upstream growth. Half of that investment goes to the Permian.

All told, Chevron's capital expenditures for 2023 are expected to be about 20% higher than the current-year spend.

"We're maintaining capital discipline while investing to grow both traditional and new energy supplies," said Mike Wirth, the chief executive officer of Chevron.

Chevron in the third quarter reported that Permian output averaged more than 700,000 barrels of oil equivalent per day, a 12% increase over the same period last year.

Chevron did not release a production target--that's expected in early 2023--but it's already beat its previous estimates for production, and the new spend could target new plays or the inventory of drilled, but uncompleted (DUC) wells.

DUC inventories have been on a steady decline for the better part of the year, as producers in the past focused their spending on existing operations rather than drilling new wells.

DUCs can serve as a barometer for future production and if those wells are at a premium, perhaps the future isn't as bright as the upstream players suggest.

Economists at the Organization of the Petroleum Exporting Countries (OPEC) in their November report said that the U.S. was still among the producers included in the list of main growth drivers for the year, but it pointed to "large uncertainties" about the direction of U.S. crude.

Nevertheless, gains are gains and any increase in U.S. crude oil production will help offset the loss of Russian barrels due to war-related sanctions.

The U.S. Energy Information Administration (EIA) shows the Permian basin is the most productive inland oil reservoir in the country. Production for December is expected to average 5.5 million barrels per day (BBL/d), only a slight improvement over November levels.

EIA also expects Brent to hover in the low $90 range for 2023, supporting the spending plans from the U.S. majors. Total U.S. crude oil production, meanwhile, is expected to improve by about 18% from the current expected average to reach 12.34 million BBL/d by next year, a record if the forecast proves accurate.

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking more than 200,000 current and future projects worth $17.8 trillion (USD).