The American shale oil boom is transformed from the carpet rolling money in a milk cow, the president of Chevron says

Building on the booming permian basin of western Texas, Chevron says that his combination of scale and pure technology allows him to leave the treadmill of expenses and finally pump the activity of shale for healthy profitability without the constant cry to “perceive, baby, drill”. While Exxon Mobil can remain larger, Chevron targets n ° 1 in the household eyes of a Wall Street which previously disturbed the petroleum sector.

The fence of its $ 53 billion in megadéal to acquire Hess in July allows Chevron to focus international on a new growth, in particular its position acquired offshore Guyana – practically the greatest oil discovery of the century – while using the United States and its massive imprint in the Permian to harvest the necessary influx of free cash flow.

The Hess agreement also includes a massive imprint in the Bakken shale oil game of Northern Dakota, adding to the high dependence of Chevron to the production of oil and gas in the American onshore shale – 20 years ago by improved techniques of horizontal drilling and hydraulic fracturing (fracturing).

After having cultivated the position of American shale onshore at 40% of its global oil and gas production portfolio – at 50%, including the Gulf of Mexico – through major capital expenses and a five -year purchasing can, Chevron is now targeting its American production and transforming it into a machine to circulate dividend hikes, signifying Bruce Niemeyer from Chevron.

“There was a period of time in the shales and tight in this industry where a large part of the attention was growing – like great growth you might have,” said Niemeyer Fortune. “The pivot for us is growth, which is where attention has taken place in recent years, one of the generation of cash flow. We adjust the activity to manage it on a tray and focus on becoming extremely effective in what we do.

“Given the portfolio we have, we can do it until the end of the next decade,” he added.

Industry analysts largely praise the “pivot”.

“This is what we have been looking for for a decade of some of these companies for a decade,” said RBC Capital Energy Analyst Biraj Borkhataria, noting that Chevron can reduce shale expenditure by around 1.5 billion dollars per year and keep the volumes of production relatively even.

Another element is a great world oil giant who does not want to place his dependence on a country too much, even if it is the American “Chevron was very clear on the production of shale as a percentage of the portfolio, and wanting to put a sort of limit on this subject,” said Borkhataria to Borkhataria Fortune.

Permien Powerhouse

The Permian basin dominates the American oil industry, producing almost half of the 13.4 million barrels of crude oil in the country per day.

And Chevron is no exception, after having struck his stage goal in the permien of 1 million barrels of oil equivalent daily, including natural gas. This makes Chevron the second net producer in the region after its Exxon rival.

The so-called carpet effect in the permien is based on the thesis that shale wells are quickly drilled for large initial oil influx which begin to run out relatively quickly, so that constant expenses and drilling must continue to maintain volumes.

Chevron has largely resolved this enigma with the combination of the scale, an increase in efficiency and its new slowdown, allowing more oil and gas to be projected with fewer drilling platforms and fracturing crew-while the ever longer mouse wells and more wells by location with each platform, while Fracking three wells, said Niemeyer.

This year, Chevron reduced its permia activity to 13 active to nine drilling platforms with more expected drops, he said.

The unique position of the permien inherited from Chevron dates from the 19th century when Texas Pacific Railway has tried and failed to build a Texas railway in California. It turned into Texas Pacific Land Trust to manage around 3.5 million acres from Texas on the railway.

The oil boom struck western Texas in the 1920s and Texas Pacific broken an oil company which was finally acquired by Texaco in 1962. Chevron bought Texas in 2001 for 36 billion dollars at the time when the Permian’s position was considered a reflection after the Schist Revolution, unlocked economic.

“There was a time in the history of our company where there was not much attention because the permien had culminated and was on this long and slow drop,” said Niemeyer. “But we have made a deliberate decision to hold it. We have a story of large fields. ”

What is unusual about the position of the Chevron Permian because of the history of the inheritance is that Chevron only manages a small majority of his imprint. Instead, the rest is held by mineral rights and long -standing co -entreprise partnerships, which means that certain permien revenues come without capital expenditure.

“The terms of this one is like nothing of what you could find on the market today, which makes the wallet that we have extremely unique in this regard,” said Niemeyer. “It could be difficult to rely at all costs today according to the terms we have it. This is a huge advantage. “

This is equivalent to Chevron with partial participation in one of the five permien wells, he said.

To compare apples and oranges, Exxon has and controls the vast majority of its peak permian position, and operates 35 drilling platforms. Exxon became by far the best player in the permien last year when he bought Pioneer natural resources for $ 60 billion. Thus, Exxon will continue to grow and not think of the tray – leaving great profits due to its huge footprint to pierce longer and more effective wells.

“I think Chevron probably manages the permian resource of how they think they could generate the highest yields of these assets,” said Jason Gabelman, TD Cowen Energy analyst. “Exxon has just made this acquisition and a large part of what they have acquired was not developed, so it is logical that they grow up while Chevron stabilizes.”

And stabilization is logical when oil prices are lower now and more world oil supplies are not necessary, said Borkhataria.

“One of them responds very clearly to what they think that market dynamics are, which is chevron,” he said. “Does the market need me to increase by 10% to 15% per year?” Probably not. Therefore, why do it? “

What is the next step?

Chevron and Exxon continue to embrace AI technology and boom to become more profitable, leaning more on the power and the calculation brain than of Brawn.

“Until this point in the shales and tight, there was a lot of brute force,” said Niemeyer, while businesses were based on the increasingly long and fracturing drilling. “Where we then direct ourselves, we are going to get the most out of the wells, but it will require another type of insight and the possibility of connecting things together, and AI will be a large part.”

Apart from the Permian, Chevron and Exxon plan to concentrate a large part of their growth through the Guyana offshore oil, which Exxon discovered a decade ago, now that Chevron bought the partnership via Hess – a little for Exxon sorrow and, after legal arbitration, a possible acceptance.

For Chevron, he must also decide where to surpass himself and to develop others. Some of these decisions could arrive at his investor day in November.

At the end of last year, Chevron sold its Canadian oil and gas assets in Alberta for $ 6.5 billion, which represents about half of the target of exceeding $ 10 billion to $ 15 billion by 2028.

While Chevron has the Bakken as a new important part acquired, analysts wonder if Chevron could be better sold there. It’s more mature and can find it difficult to compete with the permien. Chevron also has a 30% stake in the HESS Midstream Pipeline activities listed on the stock market in Bakken.

Chevron can either acquire the rest of Hess Midstream to increase the profitability of Bakken, hold stable or sell it.

“We will have to see where the Bakken is going. The active that had the attention of everyone was Guyana, and it is clearly a world class asset, and we will have to see how things are going in the Bakken,” said Niemeyer. “We are really delighted with the opportunity to be there and connect it with our other assets in the shale and tight business.”

Otherwise, Chevron must seek to develop organically thanks to an accelerated international exploration in Africa, South America, the eastern Mediterranean, or potentially elsewhere, analysts said. The success of the Permian had enabled Chevron to reduce global exploration spending in recent years, part of a broader trend in the industry.

“I think what we will see is a kind of return to exploration, which is a little less American and takes a little risk in different regions around the world,” said Borkhataria.