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Exxon and Chevron are rushing into the Permian Basin just as concerns are growing about the economic and technical challenges there. They both think they have solutions, but are they right? ft.com/content/ea0830… (1/n)
Both Exxon and Chevron have added billions of barrels to their estimated resource base in the Permian over the past couple of years. (2/n) 
Permian resources are now about a quarter of Chevron's total worldwide resource base, and about a tenth of Exxon's. $CVX $XOM
The Permian also represents a very large proportion of the two companies' expected production growth over the next 5 years or more. Essentially all of it for Chevron - the rest of the world is likely to be up or down a small amount by 2023 - and most of it for Exxon. (4/n)
Exxon also has Guyana, which will add 750,000 b/d or more of non-Permian production, so it is a bit more diversified, but it too is relying heavily on the Permian for growth. (5/n)
We have been here before. In 2008-12, every self-respecting international oil company had to buy some US shale assets. Those deals often resulted in billions of dollars in writedowns. (6/n)
It became conventional wisdom that the oil majors couldn't really do shale: they were too large, too slow, too burdened by bureaucracy. They were dinosaurs in a world of mammals. (7/n)
Now it turns out that being big and slow has some advantages. Meteor strikes are more of a threat to the E&P mammals than to the IOC dinosaurs. (8/n)
It's not just Exxon and Chevron growing in shale: BP bought BHP's assets, and Shell sees it as an important part of the portfolio. (9/n) ft.com/content/700e9e…
But the big oil companies still need to prove that they can operate efficiently and profitably in shale. Chevron is aiming to cover its spending from cash flows in 2020, Exxon a year later. We'll see. (10/n)
Both companies say they have special advantage to make it possible. For Chevron, it is the fact that it owns 80 per cent of its land, so has no costs for leases, and can drill when it likes. Its Delaware Basin acreage is the lowest cost shale in the US, according to Rystad (11/n)
Quoting myself here (12/n)
For Exxon, the advantage is what Neil Chapman, upstream SVP, calls "the ExxonMobil machine". What that means is working on large contiguous areas as an integrated development to maximise recovery. (13/n)
Darren Woods, Exxon CEO, calls it “a new approach to developing unconventionals”. He adds: “It leverages the full weight of our corporation and the strengths and advantages of our corporation. That hasn’t been done before." (14/n)
...and he argues that this is how Exxon will achieve higher returns in a notoriously low-return sector. Woods again: "We’re changing the way that game gets played, and along with it the returns that we generate in that game.” (15/n)
Can they make it work? Right now, Chevron's advantages look more compelling than Exxon's, and its projections of future returns sound more confident. But both companies still have a lot to prove. (16/16) $XOM $CVX
