Report: Supermajors Need To Spend $30 Billion To Hit Permian Production Targets

If supermajors such as Exxon Mobil Corp. (NYSE: XOM), Royal Dutch Shell Plc (NYSE: RDS.A) and Chevron Corp. (NYSE: CVX) want to hit Permian production targets, they will together need to shell out up to nearly $30 billion of investments in the basin through 2020.

This is according to IHS Markit, which released a report June 18 indicating the supermajors’ need for larger acreage positions. The analysis comes as players in the Permian—the top oil-producing region in the U.S.—drill laterals that have surpassed the 10,000-ft mark with more stage lengths and added clusters.

“If truly committed to the Permian Basin, the traditionally return-focused supermajors will have to grow accustomed to a rising cost-basis in order to build their core, operated-acreage positions that currently do not suffice to meet medium- to long-term growth plans,” Sven del Pozzo, director of energy equity research and analysis at IHS Markit, said in a news release. “IHS Markit estimates that the supermajors will need to collectively invest nearly $30 billion in new investments—effectively adding three companies the size of Pioneer Resources to the Permian, to achieve their production growth targets by year-end 2020.”

The investment ramp-up could bring about cost inflation, which could challenge smaller E&Ps, and eventually make way for consolidation in the basin, according to IHS. So another wave of land transaction could be on the horizon.