Daily Management Review

Exxon to reduce cost of oil production to $ 15 per barrel


03/19/2019


Exxon Mobil Company intends to reduce the cost of oil production in the Perm shale formation of the United States to about $ 15 per barrel. At the moment, this level is observed only in the giant oil fields of the Middle East.



Brian Katt
Brian Katt
“Exxon’s drilling scale means that the Permian Basin will be competitive almost worldwide,” said Staale Gjervik, head of Exxon XTO Energy, responsible for shale hydrocarbons, in an interview with Bloomberg.

“The cost of developing, operating and acquiring land will be about $ 15 per barrel,” he said on the sidelines of the CERAWeek conference held by the IHS Markit in Houston. West Texas Intermediate futures on Thursday traded at $ 58.5. “The methods we use are actually unique,” he added.

The shale revolution turned the Perm Basin in the world's largest shale deposit, with production exceeding 4 billion barrels per day. Iraq, the second largest member of OPEC, produces almost as much. According to Gjervik, by 2025 this figure could double, since the main activities will continue to develop. But as history shows, fast growth often means that the manufacturer “burns” free money, reinvesting in expansion. This encourages investors to encourage companies to pay more attention to profitability.

This year Exxon plans to deploy 55 drilling rigs in the Perm Basin, which is more than in any other company. By 2024, the company intends to increase production in the region by about five times, to 1 million barrels per day. The strategy also involves creating its own rig.

Some analysts are skeptical about Exxon's ambitious plan, but Gjervik, a Norwegian who joined Exxon in 1998 and worked in Angola, Nigeria and the North Sea, claims that it is this large-scale reform that will help the company generate up to $ 5 billion of free cash flow by 2023.

“Part of the plan is to develop production to the required scale and achieve financial efficiency,” Gjervik notes.

According to him, the company's production and financial goals do not depend on buying more drilling rights, but it “will always strive to make the right deals.” Gjervik also added that some land acquisitions turned out to be quite expensive, but prices could be justified by the abundance of oil zones.

Exxon's main competitor, Chevron, also seeks to expand its influence in the region. Last week, Californian company San Ramon announced plans to produce 900 thousand barrels per day by 2023. As Wael Sawan, Royal Dutch Shell Plc Vice President for deepwater mining, said, the company is also “actively looking” for profitable deals.

source: reuters.com






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