Chevron to focus on West Texas wells seen as more cost effective at current prices

Fuel Fix:
After years of spending billions of dollars constructing massive oil and gas projects, Chevron Corp. is planning to pivot to more profitable, shorter-cycle investments like its fields in the West Texas tight-oil plays.

The No. 2 U.S. oil company says it is winding down long-term investments on big projects as they come into production this year and next, but it’s going to put more of its budget toward the Permian Basin. It believes it can double or nearly triple its oil production there by the end of the decade by doubling its spending from $3 billion, about a tenth of its budget, and boosting its rig fleet there to 14 from seven.

“Don’t be surprised if by the middle of the next decade 20 to 25 percent of our production is in this short-cycle shale and tight activity,” Chevron chairman and CEO John Watson told investors Tuesday in an annual update.

In the Permian Basin, Chevron says it has 1,300 drilling locations that can make a 10-percent return at $40 oil; at $50 oil, 4,000 locations can turn a profit; at $60, 5,500 locations. And that’s just assessing a third of its portfolio there.

It expects to drill 175 wells this year with seven operated rigs and nine non-operated rigs. By 2020, the company projects it could pump up to 350,000 barrels a day out of the Permian, up from its current 125,000 barrels a day.

The only way to cope with the oil downturn is to get more efficient and productive. Over the past year, Chevron said its cost to drill a horizontal well has fallen 40 percent to about $7.1 million and the time it takes to drill a well has been cut in half to 20 days. By improving its well-stimulation techniques, the company has boosted its returns from the play by 30 percent.
They have also made significant job cuts in the process of becoming more efficient.  It does show the way companies in the free enterprise market can adapt to changes much more quickly than government own oil producers that are still hemorrhaging losses.   The capital costs of shale production in West Texas is significantly less than the big rig offshore production that used to be one of the main focuses at Chevron.  This plan is also good news for the Texas economy.


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