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ExxonMobil and Chevron go big in the Permian

It is a new era for the supermajors and the west Texas shale basin as the companies plot aggressive growth plans

For the first time in a long time, America's supermajors are putting the US at the heart of their growth strategies. ExxonMobil and Chevron this year have both rolled out aggressive plans to expand in the Permian. This move will bring deep pockets and big-oil discipline to the fast-growing shale play, which has been dominated in the past by upstart independents.

Exxon signalled its intentions in the Permian last year when it bought up huge tracts of land in the Delaware section of the play from the famed oil-rich Bass family for $5.5bn. Since, it has pieced together hundreds of thousands of acres across the Midland and Delaware sections of the Permian through a series of purchases and land swaps. These have given it 1.8m acres sitting atop some 9.5bn barrels of oil equivalent across the west Texas basin.

Now its land grab is over, Exxon plans to bring the full weight of the world's largest publicly-traded oil company into the Permian. It is currently running around 26 rigs in the Permian, a little more than 5% of all in the basin, and plans to ramp that up to 30 by the end of this year. It aims to steadily lift output from around 100,000 barrels of oil equivalent a day this year to 400,000 boe/d by 2020 and around 700,000 boe/d by 2023. The company says it has an inventory of wells that would allow it to hit the targets at $40 a barrel.

In outlining his company's Permian growth plans, chief executive Darren Woods sought to draw a distinction between Exxon and the independents that have driven growth in the Permian to date, but struggled to produce profits. "We believe strongly in this business you need to have a manufacturing mentality. You've got to drill, frack, complete," Woods told analysts in March. "You've got to put all these pieces in place to be most effective and most efficient in getting this resource to the market."

To do that Exxon plans to use the experience from its shale-focused subsidiary, XTO, which has drilled thousands of tight oil and shale gas wells across the US and throw its weight around to get the best deals on kit, crews and pipeline capacity. The company is also drilling some of the longest lateral wells in the Permian at more than 15,000ft, which, it argues, is delivering more efficient and cost-effective production.

Chevron, many argue, has lucked into one of the most enviable and largest land positions in the Permian. The company has been in the Permian for decades, but its 2m-plus acres across the play hardly registered in its portfolio when the Permian was a slowly dying giant. Now it is the centrepiece. The company has 1.7m acres of tight oil-rich land, mostly centred on the Delaware section of the Permian. In March, it increased its resource estimate for the land by 20% to 11.2bn boe, thanks to better-than-expected drilling results.

Like Exxon, Chevron is now looking to the Permian to drive the company's production growth. It is spending $3.3bn in the shale play this year and plans to increase its rig count from 16 to 20 by the end of the year. By that time, ExxonMobil and Chevron combined will be operating more than 10% of the Permian's rigs. Chevron says that while holding steady at around 20 rigs, it can expand output from around 200,000 boe/d now to some 450,000 boe/d by 2020 and around 650,000 boe/d by 2023, putting it just behind its supermajor rival.

Where Exxon and Chevron diverge in their Permian strategies is further downstream. Exxon is touting an integrated approach. It plans to feed growing Permian output into its expanding industrial base along the Gulf Coast, where the company already has the most light-oil refining capacity and is investing tens of billions of dollars in new petrochemical plants to process booming natural gas liquids output. Chevron, by contrast, is positioning itself as a pure upstream play in the Permian.

America's supermajors have played a surprisingly minor role in the country's oil renaissance. They hope to take the lead in the coming years.

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