Big Oil Dials Up Output Growth As OPEC Mulls Supply Boost

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(Bloomberg) — Exxon Mobil Corp . and Chevron Corp. closed Big Oil’s profit season by unveiling a blockbuster increase in fossil fuel production – just as OPEC and its allies prepare to increase crude supplies to the world market.

The rise in US oil prices was fueled by pumping record prices in the Permian Basin, which continues to surprise analysts with year-over-year growth and operating gains. Exxon’s oil and gas production, boosted by Pioneer Natural Resources Co. of $60 billion, up 24% from last year while Chevron grew 7%.

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US companies were not alone. Shell Plc and BP Plc climbed production by 4% and 2% respectively, even though the net zero target is more aggressive than their American rivals.

All of this is compounded by a shaky outlook for oil prices, which have already fallen by nearly 12% in the past six months due to a lack of demand from China, the world’s largest consumer of crude. They may drop further if the Organization of the Petroleum Exporting Countries follows through on its plan to restore production that was previously cut.

This time is also very different from the last few years, when the administration was working to strengthen spending during the crisis and as it faced pressure from the environmental, social and governance organizations to invest in low-carbon alternatives to fossil fuels. Past successes and eventual failures have led the industry to rally around a common strategy: oil and gas that are cheap enough to withstand any energy transition scenario.

“Exxon and Chevron have stuck to their core oil and gas strategy while expanding into some of the best assets in the world,” said Nick Hummel, a St. Louis-based analyst. Louis at Edward D. Jones & Co. “It’s a near-term view because oil and gas are feeling soft, especially as OPEC is ready to move more barrels to the market.”

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Exxon, which lost the activist battle on ESG-leaning Engine No. 1 in 2021, is a prime example of strategic change.

Acquisitions, divestments, cost reductions and effective profits have “doubled” the oil operator’s profit margins per barrel since 2019, even at normal oil prices, Chief Financial Officer Kathy Mikells said in an interview.

On the other hand, Chevron is drawing 27% more oil and gas than a decade ago despite cutting capital costs in half. Much of that is because the company has been spending heavily on Australian energy projects that are now operational, but also under operating leverage and a pivot to the Permian. Chevron has doubled its mine production in the past five years and is now returning record amounts of cash to shareholders.

“We are efficient in everything we do,” Chevron CEO Mike Wirth said in an interview. “We get more for every dollar we spend.”

US production growth – currently about 50% higher than Saudi Arabia’s – is helping to keep millions of OPEC barrels off the market. These barrels, combined with new discoveries from Guyana, Brazil and elsewhere, could mean that 5 million barrels per day of energy production “will be available by 2025 without currently producing,” Macquarie analysts said in a report. That is against a backdrop of “weak” demand growth, they said.

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The bank sees Brent crude falling below $70 a barrel, from around $73 currently, barring any major international events.

Falling prices are putting pressure on Big Oil’s ability to pay dividends and buy back shares. BP fell this week after signaling it may cut its purchases next year due to lower oil prices. But Exxon, Chevron and Shell remain confident they can weather the storm.

Exxon’s projects in Guyana and the Permian, which now account for about a quarter of total output, can pump crude for less than $35 a barrel, meaning it should remain profitable during a potential downturn.

“The fundamental transformation of our business has put us in a good position in any market, but especially in the soft market,” Mikells said.

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