Big Oil Shrugs at $50 Crude

Exxon is planning to boost its oil production regardless of where international oil prices are heading.

This comes from a senior company executive who spoke to Semafor this week. It also likely reflects the sentiment across the supermajor segment of the energy industry. After all, that’s what the consolidation drive was all about.

Exxon announced its plan to take over one of the biggest operators in the shale patch, Pioneer Natural Resources, in late 2023. The value of the deal was calculated at $59.5 billion. At the time, Exxon said the deal would result in combined resources of an impressive 16 billion barrels of oil equivalent in the Permian—and that it had every intention to exploit these resources. From 1.3 million barrels of oil equivalent daily in 2023, the supermajor saw its Permian output in 2030 reaching 2 million barrels daily. Prices were not mentioned as a factor in production decisions at all. Now, per that executive who spoke to Semafor, the 2030 production target has been raised to 2.3 million barrels of oil equivalent daily.

“We believe our operating costs are the lowest in the industry, which means we get more out of each barrel we produce,” Bart Cahir, senior vice president for upstream in the unconventional segment, told the publication. “That gives us tremendous resilience when you get into softer parts of the commodity cycle.”

Exxon is not alone in this resilience bubble. ConocoPhillips is also there with its $22.5-billion acquisition of Marathon Oil last year. Chevron is also there with its pending takeover of Exxon’s partner in Guyana Hess Corp—unless Exxon wins the arbitration dispute on its right of first refusal for Hess’s Guyana assets—and a slew of smaller though not less significant deals that reshaped the face of the oil industry.

Resilience has always been one of the goals of a consolidation push. Up until this year, the main driver of this desire to boost resilience was climate policy. Now, it’s Trump and his plans to pursue U.S. energy dominance, which inevitably means higher production, which in turn, inevitably means lower prices.

U.S. Energy Secretary Chris Wright recently said that the shale industry in the country could keep pumping more oil even if the price of crude fell to $50 per barrel. “New supply is going to drive prices down. Companies are going to innovate, drive their prices down and consumers and suppliers will bounce back and forth,” Wright told the Financial Times.

Not everyone agrees, however, and that includes another senior Exxon executive. In November, the president of upstream at the supermajor, Liam Mallon, said at an industry event that “We’re not going to see anybody in ‘drill, baby, drill’ mode.”

“A radical change (in production) is unlikely because the vast majority, if not everybody, is focused on the economics of what they’re doing,” Mallon said, speaking at the Energy Intelligence Forum in London, and added that the fiscal discipline demonstrated by industry players in recent years was the new normal.

Also, “Operators had most likely planned for prices to be over $70 this year, so at $50, rigs would likely drop and activity slow. And when the rigs drop in the Permian you lose the associated gas that the LNG industry is counting on at the end of the year,” Enverus managing director Andrew Gillick told the FT earlier this month.

The suggestion that the industry’s resilience has limits has been supported by both the former boss of Pioneer Natural Resources and energy industry authority Daniel Yergin. Scott Sheffield said recently in an interview with Bloomberg that the U.S. shale industry would have to “hunker down” if prices dip even lower and wait out that dip. “You may have to lay off some people. You’ve got to focus on your best prospects. We’ll see what happens over the next two or three years,” Sheffield said, predicting prices of between $50 and $60 per barrel.

Daniel Yergin, for his part, says simply that “at $50 a barrel, the economics of shale don’t work”, even though the breakeven price for the shale patch has fallen considerably, from $70 per barrel back in 2010 to just $45 per barrel this year, according to S&P Commodity Insights. Yet it bears noting that the breakeven price is not flat across the shale patch—and that some in the industry argue the lowest-price resources are close to depletion.

Indeed, this depletion was quite probably one of the reasons for the merger and acquisition surge in the last couple of years, along with the record profits made amid the energy crunch in Europe. With top acreage running out, the only way to boost exposure to such top acreage was to buy it from another sector player or take over the sector player itself. This is exactly what Exxon and Chevron, and Conoco, and a dozen smaller companies have done, to improve their resilience to lower oil prices.