Houston Chronicle ~ Jeff Gustavson is a Chevron executive holding the unfortunately named title of vice president of the Mid-Continent business unit.
That may read like corporate jargon or even gobbledygook, but Gustavson is essentially the head of U.S. shale oil production. More specifically, he’s leading Chevron’s efforts in West Texas’ booming Permian Basin, where Chevron will dedicate nearly half of its U.S. exploration and production spending in 2019.
In a short period, Chevron and archrival Exxon Mobil have overcome most of the leading independent producers to take over as the top dogs in the Permian where, admittedly, the Big Oil players got off to a slow start. In the third quarter, Chevron saw its Permian production surge 80 percent from a year prior to about 340,000 barrels a day.
California-based Chevron has held its legacy position in the Permian — through predecessor companies — for nearly 100 years, but it only recently ramped up its activity there again to take advantage of the ongoing shale boom. In fact, the Permian is Chevron’s largest focus worldwide for oil growth. Overall, the Permian now accounts for almost one-third of the nation’s record high oil production.
Gutvason moved to Houston earlier this year from Calgary to take over the Mid-Continent position after previously heading Chevron Canada. But he’s a Colorado native and University of Texas graduate who was raised in the oil industry.
Q: What were your roots like in the energy sector?
A: My father was — and still is — in the energy business, both in oil and gas and mining based in Boulder. It’s a very small consulting company. He’s a geologist and a chemical engineer. So I really got my start in the industry through him. I worked with him for a few years and then went and got my MBA in Austin, and then joined Chevron in 1999 out on the West Coast in San Francisco. And the rest is history — 20 years next June 28 at 8 a.m. That’s when they told me to show up.
Q: Everyone is focused on the Permian in Texas and New Mexico, but Chevron also holds about 100,000 acres in the East Texas portion of the gassy Haynesville shale. Is that going to be an area of focus?
A: The Haynesville slowed because it is a gas play. It doesn’t have the liquids we have in the Delaware and Midland basins. Gas prices have certainly been lower, so it has slowed. But activity is picking back up significantly over the past 18 months or so. We are working on our development plans in the basin. Right now we’re focused on appraisal to make sure we know what we have, and we like what we have. That will lead to a development decision in the next year or two. As we learn more about the shale and how to more efficiently and effectively develop the assets, which has been driven by the Permian, we’re now translating that into some of these other shale plays, and that includes the Haynesville.
Q: Chevron is now a leader in the Permian, but is it almost a fortuitous situation because of all the legacy acreage?
A: The key word there is “almost” because it wasn’t all luck. We did make deliberate decisions going back a decade or more. I wouldn’t say we saw the size of the potential in the Permian Basin, or the extent of that potential, but we certainly knew about the potential. And a lot of these fields — with technology and cost improvements — get better over time. This is one of the most prolific and historic basins in the entire country. We always knew there was a lot of oil and gas there. We didn’t know necessarily how to unlock it economically. But some of the decisions we made to hold our acreage — our competitors made the opposite decision. They got out and now are getting back in. We were deliberate in those decisions. We consider it to be one of the best — if not the best — positions in the Permian because of the amount of acres and where they sit. We didn’t have to buy back in at a very high cost.
Q: What about Chevron’s decision to sit patiently in the Permian and wait and learn until now?
A: It was just a different strategic approach. For us, given the acreage position that we had, we had the opportunity to learn a lot. And this is just part of our core. We take a very disciplined approach to investment. We’re not driven by near-term production results or big pops this quarter or the next quarter. So we had the opportunity to watch as the basin developed, and then quickly — I hate the term “fast following” because it almost has a negative connotation — but it was absolutely the right strategy. We can come into certain development areas and some of these smaller companies and larger ones had done a lot of the pre-work for us to determine what was most productive and what completions designs and well designs made the most sense. I wouldn’t say copy that, but we could learn from that and make it fit the Chevron system, and then move very fast. It was almost walking before you’re ready to run and now, as you see in our results, we’re running. And now we’re doing the same thing over and over again. We call it a factory or manufacturing model.
Q: Chevron has large positions in both the Permian’s emerging Delaware Basin that extends into New Mexico and the more centralized Midland Basin. How would describe them?
A: Both sub-basins are very strong. The best rocks do tend to be in the central part of each of them. I wouldn’t say erode, but the thickness of the shale and the number of benches do decrease as you move to the fringes of the basins. The Delaware tends to be gassier, but the production rates are higher. The gas has a lower value than the crude, but the total volume and recoveries tend to be higher. So it offsets some of that higher gas content with higher recoveries. There’s also surface and infrastructure considerations. The Delaware is more remote than the Midland — much more remote. So we’re still building out the power, the roads and takeaway infrastructure. There’s just much more infrastructure in the Midland-Odessa area than out in the Carlsbad, New Mexico and western West Texas area.
Q: Chevron recently co-founded the Permian Strategic Partnership that’s pledged $100 million to help build up the local communities and support energy growth. How is that effort going?
A: This has been great for the local economies of West Texas and southeastern New Mexico. The amount of investment that’s gone in and the impact on employment has been tremendous. But with that has created constraints. We’re seeing it. Probably my biggest and our biggest concern as an industry is road safety. With the condition of the roads, we’ve had an impact on that, and there’s just a lot more traffic out there. The fatality rates are higher, and that’s just something that’s not acceptable to anyone out there. There’s an impact on the education system with a lot of folks migrating to the area. The impact on housing costs has been significant. There’s an impact on health care availability. And then workforce development is another factor. The Permian Strategic Partnership now has 17 companies involved. But this is not something industry can do by itself. So it’s really going to take partnership with the communities — local, state and even national. It’s not going to happen overnight. This is a long-term partnership. And it’s not something you can just fix by throwing money at it. We’re not experts at building state roads or schools. So we’re going to have to work with communities and other stakeholders to get the right answers. But we’re very excited and think it will lead to some significant improvements.
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Q: Largely because of pipeline shortages, gas flaring in the Permian has doubled in a year with record volumes of natural gas being burned off and wasted into the atmosphere. How bad are these optics as Chevron and others push to reduce their environmental impacts?
A: There is more volume coming out of the Permian than was anticipated, and it’s coming faster than anticipated. The midstream part of this is catching up, and it will catch up. This is not unique in the Permian. This has happened in other parts of the world over time. We don’t like to flare for a number of reasons. First, there’s the environmental impact, and we don’t want methane emissions. As a rule we don’t flare unless there’s an emergency type of situation. There’s also an economic consequence. You’re flaring something that has value in the market. You’d like to avoid that. And this gets back to the disciplined approach. We want to make sure that we have gas gathering and gas takeaway worked out before we go out and put wells on production. That’s the approach we take, even if we have to slow things down. I think the industry has to address it in a similar manner.
Q: Midland-based Endeavor Energy is currently up for sale for nearly $10 billion. Is Chevron among the interested Big Oil buyers?
A: Consolidating acreage positions to have scale and bigger development areas — and drill longer laterals — is very valuable. So we’ve spend a lot of time and had a lot of success in consolidating that position over the last couple of years. We’ve put out some targets and guidance to transact on 150,000 to 200,000 acres out of our 2.2-million-acre portfolio. We’re looking at acquisition opportunities, but it’s also selling acres that don’t fit or compete. As a part of that strategy, we’re always looking at what’s out there. We don’t comment on business development opportunities or M&A in particular, but we’re always looking. It has to fit and be competitive within our existing portfolio, which is a high bar. We won’t buy just to get bigger.
jordan.blum@chron.com
