While the ‘mom and pop’ U.S. shale players are curtailing capex amid takeaway woes, oil super majors are scaling up their position in the prolific Permian play and progressing on the path of aggressive output growth in the region. The latest one to join the bandwagon is Royal Dutch Shell plc RDS.A. Shell, which currently produces 145,000 barrels of oil equivalent per day (Boe/d) in the region, intends to lift its Permian output by 30% every year. The Zacks Rank #3 (Hold) company is on the prowl for additional acreage in the Permian Basin in its attempts to keep up with peers. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Oil Majors’ Race to Permian Gathers Momentum
As we know, oil majors Chevron Corporation CVX and Exxon Mobil Corporation XOM made headlines last week by announcing their ambitious plans to more than double Permian production levels over the next five years or so. Chevron now expects Permian production to reach 600,000 barrels per day (Bpd) by the end of the decade and 900,000 Bpd within 2023-end. ExxonMobil upwardly revised its production estimates from 600,000 barrels of oil equivalent per day (Boe/d) to more than 1 million Boe/d by 2024.
Increased output targets from Shell, Chevron and ExxonMobil underscore their confidence in the Permian region, which is the heartland of the U.S. shale boom. The advent of technologies like horizontal drilling and hydraulic fracturing are primarily aiding Permian to witness increasing output growth. This marks the growing shift in the dynamics of the shale industry, which was mainly spearheaded by mid-cap or small-cap energy players but is now getting increasingly influenced by energy supermajors. While oil majors like ExxonMobil, Chevron, Shell and BP plc BP earlier accounted for a cumulative 9% of the Permian output five years back, the combined market share of these biggies in Permian has now increased around 16%.
While both Chevron and ExxonMobil boast top-tier acreage positions in Permian, Shell’s Permian position is relatively modest. However, what’s worth noticing here is the fact that while Shell is already cash flow positive in the region, its rivals Chevron and ExxonMobil are lagging in this regard. While Chevron expects Permian business to become cash flow positive in 2020, ExxonMobil is aiming at 2021.
With oil biggies sharpening their Permian focus, Shell is looking for profitable acquisition opportunities to solidify its acreage in the region where it is already cash flow positive. Shell is reportedly eyeing to acquire the privately-owned Endeavor Energy Resources for $8 billion. However, nothing has been confirmed yet. The Anglo-Dutch energy giant remains keen on grabbing more Permian land to accelerate its growth in the region and increase its shareholders’ value.
Shell’s Renewable Power Push Also a Priority
In addition to revving up Permian strength, Shell is also targeting to become the biggest electricity power company within the next 15 years. It will invest up to $2 billion per year in the New Energies division, primarily to enhance its position in the power sector, wherein it envisions 8-12% annual returns.
While renewable energy has long been considered as a niche market, things have been changing amid climate change concerns, with many energy giants being compelled to enhance their green initiatives. While U.S. energy biggies Chevron and ExxonMobil are slighting lagging behind in this department, European counterparts Shell, BP, Equinor and TOTAL are betting big to expand their renewable foothold.
With Shell’s green initiatives growing bigger, it was spared of Norway’s GPGF recent decision to divest some energy companies amid volatile oil prices. As we know, Shell became the first oil company to link executive pay with carbon emissions for combating climate change. The company has been on renewable acquisition spree of late, having collaborated with IONITY, New Motion, First Utility and Silicon Ranch, as it attempts to diversify its portfolio beyond oil and gas. Shell is also set to acquire Eneco, sonnen and Cleantech, emphasizing its increasing shift toward lower-carbon fuels. It has pledged to lower carbon emissions by 50% over the next five decades via sharpening its focus on renewable and biofuels.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, wouldn't you like to know about our 10 finest buy-and-holds for the year?
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