Chevron quietly increased Permian spending by one billion dollars (25%) to meet production targets and over come "well productivity issues". Do the math.
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@7lzo, the vicious cycle is that when you preferentially promote inept high-pots, there just aren't any truly qualified 'senior staff' or managers to fill in. This has been a Chevron millstone for decades. Good people know when to leave Chevron, clowns get promoted.
@7dnj+1ovqPsrJ. And yet they keep getting promoted after leaving disaster behind them.
I can't remember a single Chevron MCP that was finished under budget, on time, and delivered production as promised. Everything offshore Angola, Australia, Tengiz, GOM. Anything LNG. Permian isn't really a MCP, but it sure looks like an ongoing cash drain. Forget about Canada, Mexico, Argentina or Brazil, they haven't delivered anything. Am I missing something?
And why are all projections in BOED? Permian gas is worthless. I hope some analyst asks that question.
The bigger story I feel is that the projection shows 1 MMB/day maintained through 2040. I do think they may be able to hit a peak close to 1 MM if oil prices stay high but sustaining it for 10-15 years is a lot tougher IMHO.
@3ntu, note that Permian high-pots (and the Chevron web page) are still touting that Permian production will be over 1 MMbbl/day by 2025, then even they point out that production will peak by the end of the decade. Go back to earlier projections (I know I have the slide somewhere), and 1MMbbl/day was supposed to be reached by 2023. We're only 75% there, that should tell you the projections are just Wall St. fairy tales.
So now that we've got that all cleared up, when do the layoffs start, anyone hear?
@3iur or anyone else
“when the number of wells being drilled starts to increase significantly, but production (especially per-well production) is flat or decreasing”
Is this happening in MCBU ? I know they have been drilling more but had production leveled off or decreased without the acquisition of others?
I know this is true for the GOM.
I know it’s true for SASBU
I know it’s true for NMA
Currently we have Australia and kasikstan
@1vav, spot on observations. Like so many failed projects before, Chevron management chose to listen to the high-pot transients rather than the scientists and engineers, who had their data-backed doubts about Permian projections. "Leaders" like TRB, JG, SN are just passing through, this is just like I remember about Indonesia - Low-skill, high-visibility high-pots promote the vision of blue skies and endless production, knowing full well that they'll be moved on to some other position before the real truth is discovered.
@mea, agree entirely. I was talking about the play as a whole, not individual wells. Actually, 5 years would be great. I doubt Permian wells last that long. There's one unmistakable tell-tale sign about UCRs - when the number of wells being drilled starts to increase significantly, but production (especially per-well production) is flat or decreasing. That's the beginning of the end for the play.
Stubborn Ahab-like management
Interesting - I remember the original Permian Development Managers consistent message to management that only one third of total acreage would be economic without a large consolidation which included acreage divestment- he survived for a while because of results but once the developments were in full motion they pushed him out for upstarts - Unfortunately the BU VP's continued to sell the forever story and the opportunities were missed. Five more years of activity and then the rapid decline begins. It should have been different.
They have quietly started laying people off
CVX could always sell their over built office building in Midland. Great investment construction costs of $800-$1,000/sf. They couldn’t even sell it for a fraction of that today.
We all knew, or should have know, the Permian was just a hold for a decade. Long term a big company like Chevron can only make money with big scale conventional plays. We better find something, or buy something, before the bilge pumps start to fail big time.
Math was my worst subject, it’s obviously the company’s also.
Will this result in layoffs, you guys think?
Agreed, however for UCR, 20 years is quite pragmatic. Most Marcellus/Utica didn't last full on production more than 5 years. With pressure management EagleFord is limping around. Permian is breakeven @ $50/bbl. UCR generally is quite unpredictable and needs at least $70/bbl to make any significant profit.
Chevron is doomed without Permian success. We sold everything for this.
Not a surprise at all to anyone who has followed UCRs. In the first few years of production, there is wild enthusiasm that "reserves are enormous, this is going to last forever" (Google any of the big plays, EagleFord, Barnett, Marcellus, Bakken, Permian, etc.). We're just getting enough history now to understand they reach peak production in about ten years, followed by another ten years of plateaued production (see EagleFord now), or worse, steady decline (see Barnett Shale), regardless of how many wells you punch into them or how much technology you throw at them. Chevron was unwilling to throw that kind of money at the Marcellus (bye-bye, AMBU), but MW boarded the Permian Titanic and will keep paying to bail water (no pun intended), to save face. On a side note, these huge infrastructure and drilling costs, coupled with short production life is why you don't see any non-US UCR plays taking off.
I think the opex reduction drive is to do with this.
Higher decline means higher opex to manage the decline. This opex needs to be “hidden” if the company is to meet opex targets.