Chevron plans to ramp up exploration activity in shale, with spending plans in the Permian Basin potentially doubling to $3 billion, even as it further reduces its overall investment this year.
The oil major has 10 rigs in the Permian and is adding a new one every eight weeks, as operating costs there are seen falling by 35% this year, management said on a conference call Friday.
“I would expect an increase in unconventional spending,” Chairman and CEO John Watson told analysts. “We’ve talked about our ramping up in the Permian — talking about $2 billion there but we easily could spend another $1 billion there. Just in the shale and tight areas you would see some increase but that’s short cycle.” In November, Chevron said it will spend $1.5 billion a year to develop its assets in the West Texas play.
The focus on so-called unconventional plays like shale would mark a shift for one of the industry’s integrated global energy giants, which poured billions of dollars into ambitious projects — offshore and onshore — in far-flung places around the world when oil prices were higher. On Friday, Watson said it “wouldn’t surprise me” if unconventional activity accounted for a quarter of Chevron’s production by the middle of next decade.
But the company said to expect total capital spending to drop this year after capital and exploratory expenditures fell to $22.4 billion in 2016 from $34 billion in 2015.
Chevron’s muted view on overall spending comes despite the recovery in crude prices and contrasts with more aggressive investment plans from U.S. shale companies for this year. “We are well positioned to improve earnings and be cash flow balanced in 2017 through continued tight spending and cost control and additional revenue from expected production growth,” Watson said in a statement earlier. Meanwhile, Chevron reported it swung to a Q4 profit of 22 cents a share from a year-ago loss of 31 cents a share, as revenue grew 7.7% to $31.5 billion. Thomson Reuters reported adjusted EPS of 21 cents, well below analysts’ forecasts for EPS of 64 cents on revenue of $33.3 billion.
Upstream operations swung to a profit of $930 million from a year-ago loss of $1.36 billion. Worldwide net oil-equivalent production was 2.67 million barrels per day, basically flat from a year ago. But its downstream income sank 65% to $357 million.
Shares of Chevron dropped 2.4% to 113.79 on the stock market today, dropping below their 50-day average for the first time since late October. Exxon Mobil (XOM), which reports Q4 results Tuesday, lost 0.1%. BP (BP) fell 0.4%, and Royal Dutch Shell (RDSA), which reports Thursday, dipped 0.25%.
U.S. crude futures fell 1.1% to $53.17 a barrel, with the March contract down 0.1% for the week. Chevron holds about 2 million net acres in the Permian Basin, making it the largest holder in the low-cost formation, which is leading the U.S. shale revival. Even before boosts activity there, the company got a lift in Q4.
“Production increases from base business in the Gulf of Mexico and shale and tight properties in the Permian Basin in Texas and New Mexico were more than offset by the impact of asset sales of 58,000 barrels per day and normal field declines,” Chevron said. Last week, Exxon announced that it would acquire 275,000 acres in the Permian Basin in a $6.6 billion deal with to acquire several small private companies.