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Permian shale output closes gap with Saudi Arabia – The Asian Telegraph

Permian shale output closes gap with Saudi Arabia

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NEW MEXICO

In New Mexico’s Chihuahuan Desert, Exxon Mobil Corp. is building a massive shale oil project that its executives boast will allow it to ride out the industry’s notorious boom-and-bust cycles. Workers at its Remuda lease near Carlsbad part of a staff of 5,000 spread across New Mexico and Texas are drilling wells, operating fleets of hydraulic pumps and digging trenches for pipelines.

The sprawling site reflects the massive commitment to the Permian Basin by oil majors, who have spent an estimated $10 billion buying acreage in the top US shale field since the beginning of 2017, according to research firm Drillinginfo Inc. The rising investment also reflects a recognition that Exxon, Chevron, Royal Dutch Shell and BP Plc largely missed out on the first phase of the Permian shale bonanza, while more nimble independent producers, who pioneered shale drilling technology, leased Permian acreage on the cheap.

Now that the field has made the US the world’s top oil producer, Exxon and other majors are moving aggressively to dominate the Permian and use the oil to feed their sprawling pipeline, trading, logistics, refining and chemicals businesses. The majors have 75 drilling rigs here this month, up from 31 in 2017, according to Drillinginfo. Exxon operates 48 of those rigs and plans to add seven more this year.

The majors’ expansion comes as smaller independent producers, who profit only from selling the oil, are slowing exploration, and cutting staff and budgets amid investor pressure to control spending and boost returns.

Exxon CEO Darren Woods said on March 6 that Exxon would change the way that game is played” in shale. Its size and businesses could allow Exxon to earn double-digit percentage returns in the Permian Basin even if oil prices now above $58 per barrel crashed to below $35, added Senior Vice President Neil Chapman.

Exxon’s 1.6 million acres in the Permian means it can approach the field as a “megaproject,” said Staale Gjervik, head of shale subsidiary XTO Resources, whose headquarters was recently relocated to share space with its logistics and refining businesses. The firm also recently outlined plans to nearly double the capacity of a Gulf Coast refinery to process shale oil. It sets us up to take a longer-term view, Gjervik said.

The majors’ Permian investments position the field to compete with Saudi Arabia as the world’s top oil-producing region and solidifies the US as a powerhouse in global oil markets, said Daniel Yergin, an oil historian and vice chairman of consultancy IHS Markit.

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