In Permian Basin, Chevron aims to build a “well factory”

Chevron Corp.’s sprawling portfolio includes massive deep-water platforms, multibillion-dollar gas facilities and footholds in dozens of countries.

But in a conference call on Friday, executives made it clear Chevron’s future has become closely tied to a single region: the prolific Permian Basin, where the company spends $1.5 billion annually and expects to increase investments in coming years.

“We’re not looking to take all activity down to the Permian,” said Chief Financial Officer Patricia Yarrington, adding the relatively low cost of pulling large amounts of oil out of the region raises the bar for other projects competing for capital. “Permian will get the first call.”

Another executive said the company has essentially built a “well factory” across 2 million acres in West Texas and New Mexico, which means it has begun drilling oil wells over and over with the same design features.

Its approach could lift oil production in the Permian as much as 200,000 barrels a day by the end of the decade, said Bruce Niemeyer, vice president of Chevron’s mid-continent business unit.

Chevron’s focus on the Permian Basin, which Yarrington described as “an abundance of riches,” marks a strategy shift for a company that for years has developed much bigger projects, putting billions of dollars into large-scale liquefied natural gas projects in Australia and giant deep-water facilities in the Gulf of Mexico.

“When you have such an extraordinary asset base in the Permian, when it has such depth and breadth to it, such huge economic strength, everything in the portfolio needs to be judged against those options,” Yarrington said.

The company deployed five rigs to the Permian in the first half of this year, but it reduced its development costs there 30 percent, Niemeyer said.

Chevron cited the Permian as one reason its U.S. oil production business lost less in earnings in the third quarter than it did the year before, and why its output rose.

The company reported Friday its U.S. oil business recorded a loss $212 million, smaller than its $603 million loss in the third quarter of 2015, as its operating costs fell. Its domestic production rose 3 percent to 519,000 barrels a day, while its natural gas output fell 20 percent.

Chevron said it banked its first quarterly profit in a year as its international oil-production earnings surged on rising energy prices and tumbling drilling costs.

The No. 2 U.S. oil company collected $1.3 billion in net income, or 68 cents a share, in the third quarter, compared to $2 billion, or $1.09 a share, in the same period the year before. Revenues declined from $34.3 billion to $30.1 billion over the same time.

But Chevron had lost $2.8 billion in the previous three quarters combined, hammered by lower oil prices and forced to write down the value of various upstream assets on its balance sheet.

Chevron, based in San Ramon, California, said it became profitable in the third quarter because of its efforts to lower drilling and production costs. Its international income rose to $666 million, up from a loss of $1.4 billion in the second quarter.

“We have made progress toward our goals of lowering the cash breakeven in our upstream business and getting cash balanced,” Chevron CEO John Watson said in a written statement.

The company cut $10 billion in spending during the first nine months of 2016. But in the third quarter, it still spent more than it earned. The company spent $8 billion in cash, and took in less than $7 billion from operations, asset sales and by issuing debt.

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