Geopolitics Drives Future for Chevron

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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--U.S. energy major Chevron Corporation (NYSE:CVX) said it plans to boost production from the lucrative Permian shale basin to offset the loss of Russian barrels stemming from the war in Ukraine.

Chevron turned in a banner performance during the first quarter, reporting earnings of $6.3 billion, compared with just $1.4 billion during the same period last year. The return was encouraged by the increase in commodity prices, which were already running red hot before the Russian war on Ukraine added on more risk premium.

Chevron said it planned to turn some of those earnings into new investments. First quarter capital expenditures reached $2.8 billion, 10% higher than last year, and the company said it expects full-year spending to be more than 50% higher than 2021 levels.

Much of that focus will seemingly be on the Permian Basin, the largest inland crude oil production site in the U.S. and the second-largest natural gas producer, behind the Appalachia Basin.

Chevron reported net oil-equivalent production of 1.18 million barrels per day during the first quarter, which was driven primarily by gains in the Permian. Output there reached 692,000 barrels of oil equivalent (BOE/d) during the first quarter, and Chevron has now raised its production guidance by 15% to between 700,000 and 750,000 BOE/d.

The company said the move was driven in part by economic and geopolitical events. Inflationary pressures in late 2021 were already having an impact on consumer spending, the lifeblood of a capitalist economy, and the Russian invasion of Ukraine in February only made matters worse.

Russia is in the global top three alongside Saudi Arabia and the U.S. in terms of fossil fuels production. The U.S., for its part, has seen more of its oil wind up on the foreign market as importers look to replace the void that resulted from the shunning of Russian products.

For the week ending April 22, the federal government reported that total U.S. crude exports averaged 3.7 million barrels per day, a 48% increase from the same period last year. The U.S. also was a net exporter of refined petroleum products during the week.

With crude oil prices holding above $100 per barrel, there is an economic incentive to churn out more oil. U.S. Energy Secretary Jennifer Granholm, meanwhile, said domestic producers should be on a war footing given the economic pressures that resulted from the Russian war on Ukraine.

Should these prices hold, the U.S. may well be on the way to another shale oil boom. The federal government already estimates that production will beat the previous record set in 2019 at some point next year.

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