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Exxon And Chevron Reduces Production Of Shale Due To Price And Demand Drop


05/02/2020


Exxon And Chevron Reduces Production Of Shale Due To Price And Demand Drop
The steep plunge in global crude prices as well as demand because of the global lockdowns to fight the coronavirus pandemic have forced  Exxon Mobil Corp and Chevron Corp to temporarily reduce production of shale oil in the United States. 
 
Both the companies announced their plans to huge cuts in investment expenditure in the Permian shale basin in the United States which is the oil field which has been responsible for the phenomenal growth of US shale oil in recent years and made the country one of the largest producers of oil and a net exporter for the first time in its history. The two largest oil companies of the world announced a combined temporary global closure of production of up to 400,000 barrels per day (bpd) in this quarter along.
 
Since the global market for oil started crashing in March this year, both the companies have been idling their drilling equipment in Permian very fast. So far this year there has been a 70 per cent drop in the price of US crude prices and on April 20, the prices even turned negative for the first time ever with oil producers giving out money to people to take away oil from them as there was an acute shortage of storage facilities.
 
Prior to that development, both the US companies were racing with each other to churn out 1 million barrels per day in the Permian in terms of oil and gas. However with the emergence of the novel coronavirus pandemic across the world, there was a drop in demand for oil by about one third, as governments across the world imposed travel restrictions and shut down businesses. Additionally, a feud between Saudi Arabia and Russia over extension of the oil production cuts resulted in a bloody price war between the two largest oil producers of the world which brought down oil prices further.
 
"We would intend to bring activity back to the Permian when we see prices recover,” said Chevron Chief Financial Officer Pierre Breber in an interview.
 
Heavy investments in for expansion in the Permian had been made by both the companies over the last two years. While it is possible to start actual production of shale oil much faster than deep water or other conventional oil production, there is need for companies to continue to constantly drill in order to maintain output.
 
Exxon Chief Executive Officer Darren Woods said that the company’s largest cuts will come in the Permian, "where the short-cycle investments are more readily adjusted."
 
It is "beneficial in long term" to make sure "we're bringing those high production rates into a market that's more conducive" since shale projects initially produce big volumes but then production declines rapidly.
 
A loss of $610 million was reported by Exxon for the first quarter. Which was the first time in decades that the comp[any had suffered a quarterly loss. That was partly because of the company writing down almost nearly $3 billion inventory which reflected the lower profit margins because of lower price of oil in the global market. While posting a  $3.6 billion profit on asset sales and improved refining results, Chevron announced further reduction in expenditure for the current year.
 
(Source:www.reuters.com)


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