A couple of months ago, U.S. President Joe Biden urged energy companies to stop ‘war profiteering’ and even threatened to slap them with windfall tax if they failed to invest their profits in lowering costs for Americans and increasing production.
The calls came at a time when Big Oil has been posting record profits amid high commodity and energy prices.
The majority of energy companies have avoided spending big to expand production in the aftermath of the 2020 oil crisis, prioritizing returning more cash to shareholders in the form of dividends and share buybacks. Well, Biden might not fully get his wish but there are signs that companies are willing to spend more in the coming year(s) even as a raft of energy companies have announced major spending and capex hikes.
And few places have captured the attention of Big Oil more than the Permian Basin.
Some of the basin’s largest oil and gas producers have unveiled plans to ramp up extraction operations and investments in the region next year as production was forecast to increase despite oil prices projected to dip due to an impending global recession.
Permian Projects
ExxonMobil Corp. (NYSE: XOM) has not announced a drastic increase in spending, but has said that its capital spending for 2023 will be closer to the top end of its annual target of $20B-$25B, a level it expects to maintain through 2027. The company said more than 70% of its capital investments will be deployed in the U.S. Permian Basin, Guyana, Brazil and LNG projects across the globe. These investments will help increase the company’s upstream production by 500K boe/day to 4.2M boe/day by 2027 with half of that expected to come from the high return regions in the Permian Basin and other high-return regions. Exxon also unveiled plans to boost spending on lower emission projects by 15% through 2027 to ~$17B through 2027.
Exxon’s peer Chevron Corp. (NYSE: CVX) announced on Wednesday that FY 2023 capital spending budget will clock in at $17B, at the top end of its $15B-$17B medium-term range and up more than 25% from expected spending in 2022.
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The company said that upstream capex includes more than $4B for Permian Basin development; ~$2B for other shale and tight assets and ~$2B to go into projects that lower carbon emissions or increase renewable fuels production capacity, more than double the 2022 budget. Although Chevron’s spending for 2023 will be considerably higher than capital spending in the 2020-21 pandemic years, it’s still much lower than the $30B annual average of the 2012-19 period.
“Our capex budgets remain in line with prior guidance despite inflation,” Chairman and CEO Mike Wirth said, as cited by Bloomberg.
Overall, more and more energy companies are opening up to the idea of increasing spending and production.
Canada’s third-largest crude oil and natural gas producer Cenovus Energy (NYSE: CVE) has said it expects to spend C$4B-C$4.5B in FY 2023, higher than estimates of C$3.3B-C$3.7B for 2022, including ~C$2.8B of sustaining capital for maintaining base production and support operations. Cenovus said it expects to direct C$1.2B-C$1.7B towards optimization and growth, including construction of the West White Rose project in Atlantic Canada
Cenovus has also guided for production of 800K-840K boe/day next year, an increase of more than 3% Y/Y, including oil sands production of 582K-642K boe/day and conventional output of 125K-140K boe/day. Meanwhile, the company expects total downstream crude throughput to clock in at 610K-660K bbl/day, up nearly 28% Y/Y.
Three weeks ago, Brazil’s oil and gas supermajor Petróleo Brasileiro S.A. or Petrobras (NYSE: PBR) announced that it will increase 2023-2027 investments by about 15% to $78 billion over the company’s 2022-2026 projected spending. Of the $78 billion planned for capex, 83% or $64 billion is earmarked for E&P activities while 67% of the E&P capex budget will go to pre-salt activities. The company also plans to boost spending to reduce carbon emissions to ~6% of the total compared with 4% in the previous plan, and will see its decarbonization fund more than double the current $248M.
Meanwhile, Brazilian mining giant Vale S.A. (NYSE: VALE) On Wednesday announced plans to increase capex to US$6bn next year from US$5.5bn this year while exploration expenses will reach US$350mn in 2026 compared to $180 million for 2022. Vale also said it expects iron production to only increase slightly to 320 million tonnes in 2023 compared to 310 million tonnes in the current year, but expects production to exceed 360 million tonnes by 2030. Meanwhile, copper production is expected to jump to 335K-370K tons in 2023 from ~260K tons this year while nickel production is expected to exceed 300K tonnes from ~180K tons in 2022.