Exxon plans to increase its oil production regardless of fluctuations in international oil prices, according to a senior company executive who spoke to Semafor this week. This strategy aligns with the broader approach seen across the energy industry’s supermajors, reflecting the goals behind their recent consolidation efforts.
In late 2023, Exxon announced a $59.5 billion acquisition of Pioneer Natural Resources, one of the largest operators in the shale sector. The deal aimed to combine resources of 16 billion barrels of oil equivalent in the Permian Basin. At the time, Exxon projected that its daily output in the Permian would reach 2 million barrels by 2030, up from 1.3 million barrels in 2023, with no consideration given to fluctuating prices. Now, according to the executive, the target has been raised to 2.3 million barrels per day by 2030.
Bart Cahir, senior vice president for upstream in Exxon’s unconventional segment, explained, “We believe our operating costs are the lowest in the industry, which means we get more out of each barrel we produce. That gives us tremendous resilience when you get into softer parts of the commodity cycle.”
Exxon isn’t alone in this strategy. ConocoPhillips followed suit with its $22.5 billion acquisition of Marathon Oil last year. Chevron is also pursuing expansion with its pending acquisition of Hess Corp, a partner of Exxon in Guyana, unless Exxon prevails in an arbitration dispute over its right of first refusal on Hess’s Guyana assets. These moves, along with numerous smaller deals, have significantly reshaped the oil industry.
The push for resilience has been a key driver behind industry consolidation. Initially, climate policy was the primary factor motivating companies to increase resilience. More recently, U.S. energy dominance, driven by former President Donald Trump’s policies, has become a key factor. This strategy, focused on higher production, could lead to lower prices in the long term.
U.S. Energy Secretary Chris Wright recently suggested that the shale industry could continue increasing production even if crude prices 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.
However, not everyone shares this view. Another senior Exxon executive, Liam Mallon, expressed a different perspective in November. Speaking at the Energy Intelligence Forum in London, he stated that the industry would not adopt a “drill, baby, drill” mentality. Mallon emphasized that most companies are now focused on the economics of their operations and that fiscal discipline is the new normal. He also noted that most operators had planned for prices above $70 per barrel, so a drop to $50 could lead to a slowdown in rig activity.
Enverus managing director Andrew Gillick warned that a drop in rig activity in the Permian could have a significant impact, especially on the associated gas the LNG industry relies on.
Some industry experts have supported the idea that the oil industry’s resilience has its limits. Scott Sheffield, the former CEO of Pioneer Natural Resources, recently told Bloomberg that the shale industry would need to “hunker down” if prices dropped further. He predicted prices between $50 and $60 per barrel and suggested that companies may need to lay off workers and focus on their best prospects.
Energy expert Daniel Yergin also warned that the economics of shale oil become unviable at $50 per barrel, despite a significant drop in the breakeven price from $70 per barrel in 2010 to $45 per barrel this year, according to S&P Commodity Insights. However, the breakeven price is not uniform across the shale patch, and some argue that the most profitable resources are nearing depletion.
This depletion may be one reason for the surge in mergers and acquisitions in recent years. With top acreage running low, companies have turned to acquisitions, like Exxon’s, Chevron’s, and Conoco’s, to maintain exposure to high-quality resources. These deals are part of a strategy to improve resilience against the potential for lower oil prices in the future.
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