Chevron’s Gulf of Mexico operation may be most at risk from Biden oil and gas policy proposals

More restrictive oil and gas leasing, permitting and drilling on US federal lands and waters proposed by the Biden administration cast a wide net, but lack critical details and the policy still needs to be fleshed out for the risks to be fully evaluated, Chevron’s top executive said Jan. 29.

While Chevron has a large Permian Basin operation, the greater risk for the company is to its Gulf of Mexico operation, CEO Mike Wirth said during a fourth quarter earnings call.

The administration issued a moratorium on new oil and gas leases on federal lands and waters through an executive order Jan. 27 and a day later, canceled federal Gulf of Mexico lease sales indefinitely – actions which are widely expected to affect US production.

“The executive order was sweeping and broad, but it also lacked some specificity,” Wirth said. “We’re weighted toward private lands more so than federal lands, so we’ve got a fair degree of flexibility there. That remains a highly attractive place for us to step capital up and we have the capacity to do so.”

Few leases on federal land

Less than 10% of Chevron’s Permian acreage is on federal lands, Wirth said.

Wirth said there has been “general signaling” from the administration that existing leases are secure.

“And we would presume the permitting that would go with those leases is also likely to proceed, but there are questions about this that we’re just going to have to work our way through,” said Wirth. “I think we just have to see how this unfolds. I think we’ll be able to manage our way through it, but stay tuned.”

As officials in the new administration introduce their proposals that seek to revise decades of onshore leasing policy and nearly 70 years of offshore auctions, their commentary to the public suggests that details should be fleshed out in the coming weeks and months, he added.

Depending on what the administration decides, Chevron has “options” outside the US, with a global portfolio that includes LNG in Australia, project upgrades in Kazakstan and in the Middle East.

“If conditions in the US become so onerous that it really disincentivizes investment, we’ve got other places where we can take those dollars,” Wirth said.

In the US Gulf, Chevron has several large producing platforms that include the Tahiti, St. Jack/Malo and Big Foot fields. It is also developing the Anchor deepwater discovery, which was made in 2015 at an initial cost of $5.7 billion and is targeted for 2024 startup.

The company also has a number of exploration prospects to potentially drill. It also has at least one undeveloped discovery, Ballymore, made in 2018.

Chevron typically is one of the largest US Gulf participants in the federal government’s twice-yearly lease sales. It is typically is one of the stars in terms of number of blocks it bids on as well as money offered for each one.

High bidder on 10 blocks

For example, Chevron was high bidder on ten blocks in the most recent US Gulf sale in November, with offers collectively totaling $17 million. That made the company the fourth-largest bidder based on both volume and dollar value.

The blocks were all in deepwater – specifically, the Viosca Knoll area offshore Mississippi, and in Mississippi Canyon and Green Canyon areas offshore eastern Louisiana.

In the fourth quarter, Chevron produced 3.28 million boe/d, up 6.5% from 3.08 million boe/d in the same period of 2019. Liquids comprised 1.98 million b/d or 60% of total volumes, including 880,000 b/d, or nearly 45% from the US.

Natural gas produced averaged 7.796 Bcf/d, of which 5.904 Bcf/d or more than 75%, came from international arenas.

Chevron’s Q4 output increase largely stemmed from its all-stock acquisition of US independent Noble Energy, valued at $5 billion, which closed in October.

The company said it intends to grow its production up to 3% this year, compared to growth of less than 1% year on year in 2020 when output averaged 3.08 million boe/d.

Chevron affirmed its 2021 capital budget of $14 billion, compared with $13.5 billion of actual spending last year excluding its Noble acquisition. That compared with $21 billion in 2019.

About 81% of Chevron’s total 2020 capex was devoted to upstream.

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