Chevron plans to focus on shorter-cycle investments in West Texas shale plays after its larger, long-term investments come into production this year.
By the end of the decade, Chevron believes it can nearly triple its oil production in the Permian Basin by increasing its rig count from seven to 14.
“Don’t be surprised if by the middle of the next decade 20 to 25 percent of our production is in this short-cycle shale and tight activity,” Chairman and CEO John Watson said in an annual investors update.
The San Ramon-based oil company said it plans on doubling its spending in West Texas. Chevron has 1,300 drilling locations in the Permian that can turn a profit if oil reaches $40 per barrel. At $50, Chevron has 4,000 profitable locations. Chevron also has 5,500 profitable locations if oil sells at $60.
Officials said the company will drill 175 wells this year with seven operated rigs and nine non-operated rigs. The company projects an output of 350,000 barrels a day by 2020 from the Permian Basin. Chevron currently produces 125,000 barrels a day from Permian shale.
Increased efficiency has helped Chevron weather low oil prices. In the past year, Chevron said its cost to drill a horizontal well dropped to $7.1 million, a 40 percent drop. It now takes 20 days to drill a well, less than half the time it did before. Returns from the Permian Basin have increased by 30 percent.
Though the company has become more efficient, it still plans to cut up to 25 percent of its upstream work force this year. That means about 4,000 jobs will be eliminated in 2016. Last year, Chevron slashed 3,000 jobs as oil prices neared 11-year lows.
The San Ramon-based company expects to boost total production to nearly 3 million barrels a day in 2017.
“We’re in a fairly unique position in the industry,” Watson said. “We’re cutting spending pretty dramatically, but we’re going to see higher volumes.”