Exxon Mobil and Chevron said Friday that they plan to bring more drilling rigs to the increasingly crowded Permian Basin, heaping praise on the 75,000 square miles teeming with oil across West Texas and New Mexico, where drillers can pump more crude at lower costs than most places.
But the focus on the Permian by the two largest U.S. oil companies, which reported strong profits in the second quarter, underscored that the energy industry’s recovery after the long, costly oil bust remains uneven, and narrowly focused in West Texas. Other shale plays have fallen far behind, including the Eagle Ford in South Texas and Bakken in North Dakota, two oil patches once coveted by Wall Street investors and Middle East oil ministers alike.
Offshore prospects are more gloomy. Drillers have struggled to gin up any interest in big, risky projects that can only really get going again after crude prices make a break toward $60. Companies with substantial offshore businesses are laying off workers.
“You’re going to put your money where the best returns are, and that’s the Permian,” said Brian Youngberg, an analyst at Edward Jones in St. Louis.
Almost half the drilling activity in the United States is concentrated in the Permian. In May of last year, the U.S. rig count bottomed at about 400, less than one-fourth its 1,900-rig peak in 2014. Since then, the country has added more than 550 rigs, with 240 going to the Permian. In contrast, the Eagle Ford has added just 45 over the year; the Cana Woodford, in Oklahoma, 34.
Offshore services suffer
But even as the Permian booms, and some oil field service companies show strong results there, it’s not enough to sustain the sector. Offshore equipment makers, for instance, which employ thousands of workers in Houston, are suffering.
TechnipFMC cut more than 1,000 workers from its global workforce this year and National Oilwell Varco has cut about 1,500 jobs. National Oilwell Varco CEO Clay Williams warned that demand from its onshore customers is cooling off with oil prices below $50 a barrel. Several exploration and production companies, including ConocoPhillips of Houston and Anadarko Petroleum, said they are cutting planned spending by $200 million and $300 million respectively because oil prices have stayed lower than expected.
Crude settled Friday at $49.71 a barrel in New York, up 67 cents.
Prices have stayed low in part because of booming production in the Permian, which has slowed the process of draining the global oil glut that sent prices tumbling nearly three years ago, said Jim Wicklund, an energy analyst at the financial services company Credit Suisse in Dallas. If prices stay low, he said, the industry could be heading for a mild downturn that could mean new rounds of layoffs.
“We’re responsible for the glut,” Wicklund said. “It’s too much, too soon.”
A look at drilling rig counts in the U.S.
Exxon and Chevron, meanwhile, show no sign of slowing in the Permian. Both companies said drilling in the region ranks among their most important projects around the world.
Exxon plans to dispatch three more rigs there to its fleet of 16 by the end of August, and has raised its oil and gas production by about 20 percent over the past year, to 165,000 barrels a day. In the Delaware Basin, a part of the Permian that Exxon paid $5.6 billion to enter this year, it recently drilled its first well, with a 2.4 mile-long horizontal section, much longer than the typical well. And as it learns more, it plans to extend those wells further, said Jeff Woodbury, a spokesman for the Irving-based oil company.
“As activity continues to ramp up, we will continue capturing efficiencies,” he said.
The company’s profits doubled in the second quarter on higher energy prices and refining margins compared to last year. It said Friday it collected $3.4 billion, or 78 cents a share, in profits from the beginning of April to the end of June, compared to $1.7 billion, or 41 cents a share, in the same period last year. Its revenue climbed from $57.7 billion to $72.9 billion.
Chevron expects to put seven more rigs in the Permian by the end of next year, which would bring its rig count on its 2 million acres there to 20. Chevron’s Permian project production has climbed by almost one-third to about 180,000 barrels a day.
“The wells we’re drilling today are more efficient than the wells we drilled last year and the year before,” said Jay Johnson, executive vice president of upstream for Chevron.
Chevron reported a second-quarter profit of $1.5 billion, or 77 cents a share, from April to June, compared with a loss of $1.5 billion over the same period last year. Revenues rose from $29 billion to $35 billion, and oil and gas production jumped 10 percent.
Thin line for profits
For the companies that supply Exxon and Chevron with equipment and personnel to drill and frack wells, the Permian has played a key role in their recovery after the brutal downturn led to billions of dollars in losses and tens of thousands of layoffs. The biggest onshore oil field services players, Halliburton and Schlumberger, saw their North American revenues surge by 24 percent and 18 percent, respectively, from the first quarter of the year.
Still, they are barely profiting or losing money because drilling activity beyond the Permian is flat or sinking. And how long it continues will depend on when global demand and natural production declines in other parts of the world offset growing U.S. output.
Schlumberger CEO Paal Kibsgaard said rapid increases in U.S. production have “spooked the oil market investors into believing the fast barrels from U.S. land will flood the market” and kept prices from rising. Halliburton Executive Chairman Dave Lesar warned that the steady increase of active drilling rigs in the U.S. is reaching a plateau as prices stay low and oil producers are “tapping the brakes.”