Oil majors, including Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX), reported record third-quarter profits, thanks to high prices amid tight supply due to the Russia-Ukraine conflict. However, some oil companies lowered their production targets for the Permian Basin, the largest U.S. shale oil basin. This has raised concerns on whether the oil production growth in the Permian Basin is slowing down, a situation which could lead to higher oil prices.
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Oil Giants Lower Permian Output Targets
Pioneer Natural Resources (PXD), one of the leading oil companies in the Permian Basin, witnessed a 9% year-over-year drop in its Q3 oil production to 354,043 barrels per day. During its Q3 earnings call, Pioneer’s President Richard Dealy stated that productivity in the quarter “came in a little less” than what the company anticipated.
Dealy further added that the company is reshuffling its portfolio to focus on higher return wells to improve productivity.
Meanwhile, Exxon’s production in the Permian Basin came in at a record 560,000 barrels of oil equivalent per day (boe/d) in Q3. Nonetheless, the company lowered its full-year Permian production outlook to an increase of 20% from the previous growth outlook of 25%.
Exxon CEO Darren Woods stated, “I would say on the Permian, one of the challenges there is over the years, what we’ve been doing is working really hard to make sure we’re maximizing the recovery of that resource.”
Coming to Chevron, Permian Basin production grew about 10% year-over-year to 708,000 boe/d in Q3. Nevertheless, Chevron now expects its full-year Permian output near the lower end of its previous guidance range of 700,000 to 750,000 boe/d.
Factors Impacting Permian Basin Output
The revised Permian output targets reflect the impact of several factors, including labor shortage, supply chain challenges, unfavorable weather, disappointing well productivity, and higher oilfield services costs due to inflation.
Further, in its recent report, Energy Information Administration (EIA) noted that fewer drilled but uncompleted wells (DUCs) coupled with natural gas pipeline constraints could further limit U.S. oil production growth.
A Wall Street Journal report quoted Tom Loughrey, president of oil analytics firm FLOW Partners LLC, “We have roughly 10 years of high-quality drilling inventory in the Permian, and less if we grow faster.” Loughrey noted that well performance in the Delaware basin, the western half of the Permian that oil companies have drilled heavily, is expectedly deteriorating as the region matures.
Amid these dynamics in the energy space, we will look at Wall Street’s ratings for Exxon and Chevron.
What is the Target Price for Exxon Stock?
Exxon and other oil giants benefited immensely from high energy prices this year. That said, demand concerns amid an impending recession and the COVID situation in China have brought down oil prices from the peak levels seen earlier this year.
Wall Street is cautiously optimistic on Exxon stock, with a Moderate Buy consensus rating based on eight Buys and four Holds. The average XOM stock price target of $115.25 suggests a modest upside potential of 1.4% following a year-to-date rally of 86%.
Is Chevron a Buy, Sell, or Hold?
The Street’s Moderate Buy consensus rating for Chevron stock is based on seven Buys, five Holds, and one Sell rating. The average CVX price target of $181.62 suggests downside potential of 2.2%. Shares have jumped 58.2% this year.
Conclusion
President Biden has been heavily criticizing oil companies for not reinvesting their profits to boost production and instead rewarding shareholders through dividends and buybacks. Amid this scenario, a deceleration in the Permian oil production growth is certainly not a favorable development, especially when supply is already tight due to the Russia-Ukraine crisis.
