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Exxon’s Billions Could Spawn a Permian Monster


Exxon Mobil Corp. took four hours on Wednesday morning to tell investors: “Hold on a bit, we got this.”

But investors aren’t in a patient mood with high-spending oil and gas companies, and Exxon’s capital-expenditure budget – summary: not much change from $35 billion a year – drew the unsurprising response. Yet, looking beyond the next couple of years, Exxon provided a lot for everyone, investors and competitors, to chew on.

Exxon is doing nothing less than an overhaul of the portfolio, as might be expected after a few years of setbacks. When you’re this big – the size of an OPEC producer – that costs money. Exxon projects it will generate $190 billion of free cash flow through 2025, equivalent to almost 60 percent of its current market cap and implying $90 billion after dividends potentially available for buybacks. However, eyeballing the fuzzy bars on Exxon’s deck, that capacity doesn’t start coming through in earnest until 2021.

The fact that Chevron Corp., which held its own analyst day on Tuesday, is already buying back stock and yielding more on near-term payouts is where much of the interest in Exxon ends in the current environment. But there are implications from Exxon’s numbers that shouldn’t be ignored.

Exxon’s guidance implies cash from operations almost doubling by 2025 to $60 billion. Coincidental or not, that would match the peak reached in 2008. Production is projected to be higher; the fuzzy bars suggest annual increases of 3-4 percent through 2025. Even so, that level of cash flow would be astounding at a $60 oil-price assumption compared with the $100-a-barrel that prevailed in 2008 (don’t forget U.S. natural gas averaged almost $9 per million BTU that year, too).

The most striking detail beneath these headline projects concerned, of course, the Permian basin. As with Chevron, Texas is at the center of Exxon’s strategic plan. The biggest question hanging over the majors is whether they can take shale, the preserve of the smaller E&P companies, and make it generate the free cash flow needed to fund dividends. Exxon says its Permian position will fund its capex by 2021 and actually generate $5 billion of free cash flow after capex in 2023.

That was far from being the biggest number in Exxon’s presentation. Consider this, however: Only one U.S. E&P company makes $5 billion of free cash flow across its entire business today (ConocoPhillips). The next two biggest generators of free cash flow –  Occidental Petroleum Corp. and EOG Resources Inc. – made less than $2 billion each in 2018. Screening E&P companies with a market cap of $5 billion or more on the Bloomberg Terminal, Exxon’s projected $5 billion of free cash flow from its Permian business alone in 2023 would be almost as big as all 18 companies other than Conoco. It is just a huge number.

Is it a realistic number? If Exxon hits its projected production of somewhere around 1.1-1.2 million barrels of oil equivalent per day by 2023 (according to the fuzz-o-scope) then … maybe (see the math below(1) ). But that depends a great deal on Exxon’s contention that its upfront investment in infrastructure in the Permian basin and Gulf Coast, as well as a dollop of experience-curve benefits, proves right.

It would be foolish to discount Exxon’s ability to bring its “machine” to bear. However, the company’s track record with production-growth targets is spotty at best. And, as with its peers, the performance of the past decade or so has put a big dent in Exxon’s reputation for discipline and rock-solid returns. That’s why four hours of explaining that big upfront check left the market unmoved on Wednesday morning. But it’s also why other stakeholders – frackers and OPEC, say – should lace their skepticism with a healthy dose of nervousness about what could be coming down the pipe.

(1) Assume output of 1.15 million barrels-equivalent a day, at 60 percent oil and 40 percent natural gas. Assume $60 oil and $3 gas for a blended price of $43per barrel-equivalent. Assume $20 per barrel of cash operating expenses and royalties.This generates cash from operations of about 9.7 billion (in line with Exxon’s fuzzy bar chart on slide 51). Then assume 40 rigs operating at $120 million each per year, and that leaves just under $5 billion. All of these numbers are, like Exxon’s fuzzy bars, subject to change/adjustment/scathing criticism.

To contact the author of this story: Liam Denning at [email protected]

To contact the editor responsible for this story: Mark Gongloff at [email protected]

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Liam Denning is a Bloomberg Opinion columnist covering energy, mining and commodities. He previously was editor of the Wall Street Journal’s Heard on the Street column and wrote for the Financial Times’ Lex column. He was also an investment banker.

Wash Post

15 Comments on "Exxon’s Billions Could Spawn a Permian Monster"

  1. Gaia on Wed, 6th Mar 2019 3:36 pm 

    This article is a crock of shit.

  2. Davy on Wed, 6th Mar 2019 4:50 pm 

    What else would you expect from Bloomberg Gaia? Bloomberg is a mouthpiece for our ZOG.

  3. makati1 on Wed, 6th Mar 2019 5:57 pm 

    WaPo is hilarious! The National Inquirer had a reputation for bullshit, but WaPo, the NYT, FT and Bloomberg are all vying for number one in that arena today. All propaganda outlets for TPTB.

    Liam is obviously a paid shill for Wall Street. Snake oil salesman. Grifter. Pimp.

  4. Lucifer on Wed, 6th Mar 2019 6:05 pm 

    Calm down Mak, there will be no name calling while i’m on here.

  5. Not Davy on Wed, 6th Mar 2019 6:26 pm 

    Davy on Wed, 6th Mar 2019 4:50 pm

  6. JuanP sock on Wed, 6th Mar 2019 6:28 pm 

    Gaia on Wed, 6th Mar 2019 3:36 pm

  7. Dredd on Wed, 6th Mar 2019 9:27 pm 

    Why did they change their name (Humble Oil-Qaeda)?

  8. Go Speed Racer on Thu, 7th Mar 2019 4:48 am 

    Thanks so much,
    Mr. print baby print

    Your link about shale oil being inferior
    octane rating, is very interesting.

    A friend of mine worked on the BN railroad
    as train engineer, he said they hauled
    hauled plenty of oil tank trains.

    He said the viscosity is much thinner, it
    isnt like a regular crude oil.

    The outcome of this, is obvious. The high octane fuel will cost a lot more. The low octane fuel will cost less.

    AND they will be doing the octane boost by
    dumping in loads of corn-ethanol. Result
    will be more & more “corn gasoline”.

    For those of us who give a damn, keep
    close track of where to purchase “real”
    gasoline (no ethanol, high octane).

    I know of several such stations. It costs
    a lot more. Standard gasoline is around
    $2.99 a gallon. The good stuff is about
    $4.39 a gallon (pricing right now).

  9. Free Speech Forum on Thu, 7th Mar 2019 6:21 am 

    Since one of the biggest threats to the NWO are strong, white men, the 1% are using their control of the media and the government to kill them off with their plan to:

    Poorly educate students.

    Allow millions of 3rd world illegal aliens and refugees to flood the country to divide the population and lower wages.

    Export jobs.

    Make everything illegal.

    Encourage debt use.

    Glorify wars and minimize reporting of costs and casualties.

    Ridicule religion.

    Celebrate homosexuality and immorality.

    Encourage obesity and laziness with welfare.

    Punish hard work with taxes and regulations.

    Break up families and penalize men with alimony and easy divorce laws.

    Insult white men in movies and TV shows while praising minorities and females.

    Distract the population with bread and circuses.

    Give tax-breaks to employers of minorities and women

    Erase history and emphasize achievements of minorities and women while minimizing accomplishments of white men.

    Brainwash the population with political correctness and employee sensitivity training.

    Audit, arrest, censor, kill, and deny web-hosting and payment services to truth-tellers.

    Pay Ivy League professors well to write studies that are the opposite of scientific and economic history.

  10. Go Speed Racer on Thu, 7th Mar 2019 8:01 pm 

    i thik that U just nailed it
    Mr. Free Speech Forum.

    but unfortunately, there aint no
    free speech.

    the libs made it illegal to say what U think.

    Also the libs made it illegal to burn
    garbage in my backyard, so now I have to
    do that only late at night.

  11. annonymouse-the-tard-aka-fmr-paultard on Thu, 7th Mar 2019 8:16 pm 

    mr free speech is a libtard nutzsie
    being a libtard he loves muzzies
    false prophet

    today we remember supertard cody wilson who pioneered printed guns

  12. Davy on Sat, 9th Mar 2019 5:08 am 

    Good Morning All,

    I’m so sorry readers for losing my shit this morning. I realize it’s not too difficult to figure out I routinely engage in identity theft and deploy multiple sock puppets.

    Why? I am sick.

  13. Dredd on Sat, 9th Mar 2019 8:03 am 

    Honey I shrunk the permian ice sheet, or “Exxon’s Billions Could Spawn a Permian Monster” (Mysterious Zones of The Arctic – 5).

  14. majece majece on Fri, 15th Mar 2019 7:37 am 

    I advise you to read information from if you are going to use MLA style. You can use this information in your academic future

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