Occidental Petroleum is close to ceasing all drilling operations in the Permian Basin. The company will have just a single oil rig in the basin for the second half of the year, a sign of the scale of the industry’s pullback as well as Occidental’s debt woes.
The deal to buy Anadarko Petroleum last year was supposed to consolidate Occidental’s position as the largest oil producer in the Permian, but instead did the opposite reported the Midland Reporter Telegram. In May last year, Occidental was running 12 rigs in the shale region of West Texas and New Mexico, while Anadarko had a further 10, meaning the current plans represent a 95% decline in drilling.
U.S. shale’s explosive decade of growth and transformation of global energy markets came to an abrupt end when the Covid-19 pandemic struck this year, crushing demand for petroleum and busting open the fault lines of the debt-fueled boom. But a rebound in demand from the depths of the crisis in April is failing to translate into any real uptick in activity in the shale patch. Instead, production declines are expected to continue later this year.
There are only 176 oil rigs active in the whole of the U.S., the lowest since 2005, well before the shale boom. Worse may be to come, with the number of drilling permits last month dropping to the lowest since September 2010, according to Rystad Energy. Activity “is not likely to materially recover this year,” the Oslo-based researcher said in a note Tuesday.
Occidental, with its near-$40 billion debt pile, is an extreme example of the retreat, but it’s not alone. Supermajors Exxon Mobil Corp. and Chevron Corp., long expected to pick up the slack from a slowdown from smaller rivals, will probably only have 14 rigs between them by the end of this year, down from about 70 a year ago.
The company said it plans to only have one rig in the Permian for the rest of the year and none in the Rocky Mountains. It will only drill between 12 and 20 wells in the Permian in the second half, compared with 118 in the first half.
The slowdown, combined with lower prices, caused Occidental to post a $6.6 billion write-down in the second quarter, equivalent to more than 40% of its market value. More than two-thirds of the impairment was to account for the lower value of its domestic onshore acreage, with the remainder in the Gulf of Mexico and overseas, the Houston-based company said Monday in a statement.
Source: Midland Reporter Telegram