The IEEFA said investors should place the oil firm's Permian plans under a microscope and demand better disclosure of both its financial and operational results in the region
Exxon has made a series of high-profile Permian acquisitions in recent years (Credit: Shutterstock/Purplexsu)
US oil major ExxonMobil is “underperforming” in the Permian Basin and its assets in the region will require the “immediate attention” of the new board.
That is according to analysis by the Institute for Energy Economics and Financial Analysis (IEEFA), which highlights that Exxon has placed the Permian Basin, the largest oil-producing region in the US, at the centre of its upstream turnaround plans.
The Texas-based firm has made a series of high-profile Permian acquisitions in recent years, relying on high-tech horizontal drilling and hydraulic fracturing (fracking) to boost oil and gas output from the region.
In recent investor presentations, it has highlighted the superior performance of its oil wells in the Delaware Basin, a portion of the Permian that straddles western Texas and southeastern New Mexico.
“Investors should place the company’s Permian plans under a microscope and demand better disclosure of both its financial and operational results in the region and its future contribution to the company’s share value,” said Clark Williams-Derry, IEEFA energy finance analyst and report lead author.
Exxon data “undermines” company’s world-class quality claims about its Permian Basin assets
The report suggests that Exxon’s own data “undermines” its claims of world-class quality and industry-leading production in the Permian.
In its 2020 presentation, the company insisted its wells were the best in the Delaware Basin, as measured by first-year oil production, and that they were steadily improving.
But Exxon’s 2021 investor presentation showed its Delaware Basin wells had slipped into fourth place in the basin, with first-year production from Delaware wells lower than in the previous year. The company reported that its larger holdings in the Midland Basin showed middling performance, ranking seventh amongst 17 of its competitors.
The IEEFA analysed the same data sources used in Exxon’s investor presentations and confirmed that its well productivity ranks behind many of the firm’s peers in the Permian.
The report shows that the productivity of the company’s Delaware Basin wells has been declining since 2018, contradicting the company’s upbeat claims about improving productivity, industry leadership and world-class quality.
“ExxonMobil claimed to be the leader in Permian Basin oil production,” said Williams-Derry. “But on a closer look, it appears to be just another fracker.”
IEEFA questions whether Exxon can rely on Permian Basin for company’s “go-to” assets
The IEEFA said its findings raise “troubling questions” about the quality of the company’s Permian assets, the transparency of its investor disclosures and whether these reserves can be the company’s go-to asset in the coming years as planned.
After years of disappointing financial performance in its US oil and gas portfolio, the report notes that the company staked a huge bet on the Permian, building out its position with a series of acquisitions.
But the analysis shows that since 2014, the upstream portfolio, of which the Permian Basin is a key resource, has produced negative earnings.
“In the recent board elections, ExxonMobil’s shareholders demanded better accountability from the company’s board of directors,” said Tom Sanzillo, IEEFA’s director of financial analysis and report co-author.
“These findings are a wake-up call for the new board. They go to the heart of the company’s reserve valuations, disclosure reliability and future as an oil and gas producer in a changing market.”