Why The U.S. Has Reasons To Celebrate Exxon And Chevron’s Shale Ambitions

by Trefis Team
Exxon Mobil
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The North American region has the second biggest deposits of shale oil in the world after Asia Pacific. Unlike the Asia Pacific region, however, North America possesses certain key dynamics that allow it to develop resources more quickly than others – the presence of active petrochemical giants being the most important factor. Companies like Exxon Mobil (NYSE:XOM) and Chevron Corp. (NYSE:CVX) have certainly been scrambling for their share of the most promising prospects in the U.S. and Canada in 2012, and their enthusiasm has helped the U.S. increase its oil production by 30% and gas output by 20% over the last five years. [1]

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This is a trend that will continue in the next two decades, according to BP’s Energy Outlook report released this year. In fact, the increased production of tight oil (oil derived from shale deposits) and shale gas will most likely help make the U.S. self-sufficient in energy by 2030. This would make for a radical shift in energy economics in the region, considering that imports accounted for 45% of U.S. oil needs in 2011.

Some of the recent steps taken by Exxon for developing North American shale include a $1.6 billion investment in Bakken, one of the most promising shale oil fields in the U.S., giving the company a 50% bump in acreage in the region. [2] This was followed by a $2.9 billion investment for Celtic Exploration’s leases in Duvernay and Montney, giving the company access to two key shale formations in Canada. [3]

Chevron has also been busy amassing acres in Canada with key purchases made in the Duvernay region in 2011. The company currently also holds 700,000 acres in Marcellus, another key shale region in North America. The company has revealed that it plans to acquire a further stake in shale gas fields in Western Canada in the future. [4]

What all this means is that the North American region is well on its way to become a powerhouse in shale-based oil and gas production in the next 20 years. In fact, according to BP’s report, the U.S. will surpass Russia and Saudi Arabia as the largest producer of liquid fuels in the world within the next year. By 2030, the country will dominate world production of tight oil, which is estimated to contribute nearly 9% of global oil supplies by the time. Total production of tight oil will most likely grow more than six-folds within this time frame.

This outlook is in-line with our own projections. We expect both Exxon Mobil and Chevron to steadily improve their total oil production capacity in the next 5-6 years, the rise of tight oil being a major factor in our assumptions. With the increase in the prevalence of such unconventional oil sources, however, we also expect these companies to see their margins stagnate at levels markedly lower than what they have historically enjoyed in upstream operations. Extracting tight oil requires markedly higher investments in all aspects of upstream operations – right from machinery to R&D.

Nevertheless, the rise in crude prices due to ever-increasing demand (especially in emerging economies) should make up for most of the rise in production costs and provide more incentives for petrochemical giants to continue their investments in shale oil and gas fields (and improved technology) in the future.

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  1. BP Energy Outlook 2030“, January 2013 []
  2. Exxon to Buy Denbury’s Bakken Acreage for $1.6 Billion“, Wall Street Journal, September 2012 []
  3. Exxon’s Biggest Canada Deal Signals Shale Rush“, Bloomberg, October 2012 []
  4. Eyeing Asia, Chevron Snares Stake in Kitimat Natural Gas Project“, FOX Business, December 2012 []
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