Exxon to cut activity in Permian Basin as oil prices plummet

The Albuquerque Journal ^ | March 5, 2020 | Cathy Bussewitz, AP

[CedarDave]

Exxon Mobil plans to reduce the number of oil rigs operating in an oil-rich region in the Southwest and may cut planned capital expenditures as the spreading coronavirus saps energy demand.

The price of a barrel of oil has fallen more than 20% since the start of the year, and 8% in the last month, with energy demand expected to shrink as the outbreak drags on the global economy.

Exxon will reduce the number of rigs in the Permian basin, a region that stretches across the border of New Mexico and Texas.

Capital expenditures include expenses such as drilling and completing wells. The heaviest spending cuts will come within the Delaware Basin, which is contained within the Permian Basin.

“We anticipate reducing the number of rigs in 2020 by more than 20% this year versus where we are today,” said Neil Chapman, senior vice president, said of spending in the Delaware Basin.

[CedarDave]

The huge New Mexico budget increase of 7.6 percent passed by the Dems in the legislative session that ended two weeks ago used an estimated oil price in the low $50's per barrel for revenue estimates (Oil and natural gas revenues provide for upwards of 35 percent of all state income). Today's crude price is just under $46 per barrel.

Below is a good discussion of New Mexico's economy and the impact oil and natural gas has as can be seen in the graphs accompanying it. One thing that New Mexico does well is providing economic analyses by the NM Legislative Finance Committee. What the legislature does with them is another matter, depending which party is in power (all Dems this year).

New Mexico Concensus Revenue Estimate - August 2019

[nickcarraway]

Mistake. They should be pressing OPEC’s market share.

[calenel]

After Iran collapses and the Chinese want to restart their economy they can buy oil from us.

[Rebelbase]

Does this mean stopping the drilling of new wells or production in existing wells or both?

[CedarDave]

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[CedarDave]

Does this mean stopping the drilling of new wells or production in existing wells or both?

20% decline in drilling. Production will slow too but by not as much. (360,000 barrels of oil per day in the Permian Basin this year, down from its previous estimate of 380,000 barrels per day.)

[9422WMR]

There are still pipelines under construction from Midland to the Gulf Coast.

[wildcard_redneck]

“Mistake. They should be pressing OPEC’s market share.”

You are right but Exxon won’t do this because it is part of a price fixing scheme by the major oil companies. It will be up to the smaller players to keep drilling to increase their market share. Remember it wasn’t the big players that created fracking technology.

[Attention Surplus Disorder]

I cannot recall XOM trading under $50. This is at least a 15 year low. Some of the refiners, VLO, MPC, HFC, PSX, are really trading at cheap prices. Doesn’t mean they can’t get cheaper.

I honestly cannot figure out where one would call a bottom in the airline stocks. Just murdered.

Banks are getting smashed on these low rates; energy in the tank. There’s still tech but IMO we’re gonna see tech stocks get crushed because a 30-day shutdown in a Chinese chip plant will destroy their earnings.

Not looking good for the stock market.

[LegendHasIt]

Seems perhaps ‘penny wise, but pound foolish’ to me. But maybe newer technology makes temporary movement of drilling rigs less of a big deal than it used to be?

Or maybe they think that Governorlissima Lujan and her fellow leftists in the legislature will be successful in destroying the energy industry in NM for the foreseeable future, and want to get out before their assets are completely appropriated by the totalitarians that now run the state..

[libertylover]

I wish I had a price reduction at the pump.

[CedarDave]

Travel stocks, including cruise and hotels, vacation spots etc. all down big time. I’m hoping that the future hot weather will diminish the virus spread as it does for the cold and flu in the spring. But then you have allergies which to the casual observer appear to be a cold or flu.

[Attention Surplus Disorder]

I have had this discussion with a pal with whom I have these types of discussions. I have to be very, very, very careful about getting too bearish. Very.

There are three factors here:
1: The physical deaths from CV.
2: The behavior of the stocks in the various affected sectors
3: The reality.

To be unbelievably crass,
1: the number of Chinese deaths does not much matter. The number of US deaths, unless this gets massively serious, will be small, and mostly confined to folks in nursing homes and the like.
2: Stocks will suck, IMO, and they will suck on a persistent basis because longer terms earnings will be negatively affected. You wanna buy airlines? Be in no hurry. You wanna buy oil stocks? No hurry, even as cheap as many of them are.
3: The actions of government bureaucrats, looking to stand for righteousness and preparedness, will gum up real-world economic activity a lot. IMO, this will be the biggest effect.

Banks will be horribly affected because with rates this low and biz activity choked off by #3. Energy will reflect reduced activty. With these two major sectors dented, I do not think the market can show much strength, other than violent snap rallies like Wednesday. Immediately sold into, Thursday.

I have to stop discussing this or I will get crazy bearish.

[BwanaNdege]

Ever hear of “Supply & Demand”?

Ever do a salary negotiation?

Collective Bargaining?

[cpdiii]

“Does this mean stopping the drilling of new wells or production in existing wells or both?”

Existing wells will continue producing. Exxon and others are reducing their numbers of new wells in anticipation of reduced demand in the near future. They know where the oil is and can quickly ramp up drilling as needed to meet demands in the future. The potential in the Permian basin is huge.