By Sabrina Wong
Oil industry leaders ExxonMobil and Chevron have recently announced initiatives to ramp up oil and gas production via fracking in the US Permian Basin, a large southwestern oil field well known for its petroleum, potassium, and natural gas resources. ExxonMobil executives say that the company is aiming to reach a production level of a million barrels a day by 2024, while Chevron sets a benchmark of 900,000 barrels a day within the next five years.
Big oil moving into shale drilling seems to be the general trend in the industry. Modern crude oil and natural gas fracking yields in the Permian Basin from the big five oil companies have increased from 9% in 2014 to 16% today and is poised to grow at an even faster rate. Generally, investors have reacted positively, as revenues are expected to grow with production numbers. ExxonMobil and Chevron’s stock prices have performed impressively in the year to date, seeing 16% and 12% gains, respectively.
Smaller companies have pioneered fracking efforts in the Permian several years before big oil began moving in. As fracking technology has developed, the price of natural gas has continuously decreased, causing consumption to rise to new levels. Natural gas use now accounts for the second-largest source of energy consumption in the US at 29%, right after petroleum at 31%.
Because prices have decreased, smaller companies have been struggling to remain profitable due to the increasing material and labor costs associated with the prolonged drilling of shale wells. In contrast, larger companies should be able to effectively leverage their economies of scale in order to create efficiencies that ultimately will lead to larger bottom line figures. Analysts and industry experts expect much market disruption as large companies begin to crowd out the smaller ones.
Growth, however, may be threatened by increasing awareness surrounding the environmental impact of fracking. Fracking entails drilling deep into the ground, followed by high-pressure blasts of a mixture of water, sand, and chemicals to break up deposits of gas that are released from a well. The EPA has done extensive research into the risk factors, and the main issue involves natural gas and chemical leaks into the US drinking water supply, which can cause widespread health concerns. In addition, natural gas resources are finite. As more and more wells are drilled, the natural gas supply tapers off, inciting more intense drilling on the part of the companies. Aside from the associated increasing costs, this further increases the risk of water supply contamination. These are challenges that big oil will have to address moving forward as revenue streams become increasingly dependent on drilling in the Permian.