Originally published on Forbes.com on August 25, 2022
Chevron Secrets: Earnings And Environmental Challenges In The Permian.
A confluence of reports on Chevron activities in July-August 2022 is intriguing yet confounding. Profits have soared but the super-major is grappling with environmental issues.
In 2019, Chevron put in a bid to buy Anadarko for $33 billion. Big bucks. Anadarko turned the deal down and had to pay Chevron $1 billion in penalties – because they accepted Occidental’s offer of $55 billion. Much bigger bucks.
This was right before the Covid pandemic when profits went to zero essentially, which must have petrified Occidental.
Now in 2Q of 2022, Chevron has just announced earnings of $11.6 billion. It’s been a very good year for Chevron, as with other super-majors. Together, the five super-majors made $50 billion in the second quarter.
It wasn’t just oil. In their press release, for crude oil the average sales price moved up from $54/barrel a year ago to $89/barrel in 2Q. But natural gas shot up from $2.16/MCF to $6.22/MCF in 2Q. This is almost a three-fold increase.
Growing conventional business.
Production from the Permian basin was 15% larger than a year ago.
The press release also said Chevron would invest $1.6 billion in a new Deepwater field in the Gulf of Mexico, called Ballymore. It’s expected to produce 75,000 barrels of oil/day.
The report said the company in 2026 would begin to export LNG to the tune of 4 million tonnes per year from the Gulf Coast. This is an ambitious volume since the US exported a total of 7.2 million tonnes in the first 4 months of 2022.
Growing renewable business.
Chevron is starting to address the vast carbon emissions when its oil and gas is burned as fuel. This is timely given the enormous profits made in 2Q from selling or refining oil and gas in 2022.
Chevron recently closed its buyout of Renewable Energy Group, Inc. in June, and also wrapped up a renewable fuels joint venture with Bunge North America, Inc.
Renewable Energy Group (REG) is a leading bio-based diesel producer in North America. In transportation, REG is converting renewable resources into low-carbon fuels. They operate eleven biorefineries in the US and Europe.
Last year, REG produced almost 500 million gallons of cleaner fuel that would reduce carbon emissions by over 4 million tonnes. This is a minuscule amount, just 0.07% of total carbon emissions from the US, or 0.01% of emissions from the world, while the oil and gas industry worldwide generates about 50% of all carbon emissions.
Still, it can be regarded as a significant entry point by Chevron in the carbon race. The company now claims it’s now one of the leading renewable fuel producers in the United States. The need and the challenge is to build on this beginning to provide more hefty low-carbon solutions to offset the massive carbon emissions that arise by burning their oil and gas.
In the same year, and the same period of July-August, an article in Texas Monthly revealed a poignant story about leakage from abandoned wells in the Permian basin, the site of so much of Chevron’s profits. Some of the leaking wells were owned by Chevron.
The story demands attention because the author is Russell Gold who wrote a good book called The Boom – about how fracking in the US was the key to the shale revolution that changed the world.
This shale revolution made the US self-sufficient in oil and gas and lowered the price of gasoline for cars and trucks and energy for homes and industry. Energy in the US has been cheap and reliable for 20 years and sadly had been in sharp contrast with Europe and Southeast Asia where gas prices have recently increased by 5-7 times and are projected to keep on rising.
It’s a story about a ranch out of Monahans, in West Texas, 35 miles from Odessa, where wells were drilled for oil back in the 1940s and 1950s. As the wells aged, the water cut increased meaning several barrels of salt water were produced along with one barrel of oil.
The saltwater was mostly reinjected by disposal wells until the oil was depleted. Then many oil wells were retooled to become disposal wells. Eventually, the wells were plugged by placing globs of cement at certain depths of the well, and the wells were abandoned.
Now, decades later, saltwater has been leaking up some wells bought by Chevron when they acquired Gulf Oil in the 1980s. The saltwater polluted freshwater aquifers and caused spills on the ground surface that killed mesquite trees. In one case, the high-pressure water burst upward as a geyser.
The story recounts one ranch owner, Ashley Watt, who decided to seek help from Chevron and also the Texas Railroad Commission which was supposed to govern the regulations about wells that pollute the owner’s land.
Watt was motivated to find the cause of the leaking wells, and to get them fixed because her mother died of an aggressive and rare cancer in her adrenal glands. She believes cancer could be linked to the pollution of groundwater at the ranch. Watt has testified that the groundwater well close to her home has become saltier than the ocean. “The citizens of Texas, and especially those of us who live in the oil fields, deserve safe and clean groundwater,” she said according to the report.
Chevron did provide resources to plug one difficult well, the Estes 24, although it was a challenge. At one point, there were 50 contractors at the ranch. Watt also hired a few people to monitor Chevron’s activities.
But Watt has been frustrated at the level of help provided. One clear complaint was that Chevron has not been responsible for the proper plugging of all abandoned wells on the ranch land.
It’s a complicated story because the source of the high-pressure saltwater coming up from abandoned wells has been unclear. Was the over-pressured water the result of years of massive injection in disposal wells on the ranch?
Or was it due to the movement of high-pressure water from miles away where saltwater is still being injected? Such a situation happened in Oklahoma and resulted in damaging earthquakes, and is now happening in the Delaware basin, a western flank of the Permian. Understandably, Chevron may be reluctant to do more widespread and expensive testing – the kind of analysis that was done in Oklahoma.
Watt insists that Chevron should clean up surface spill damage and dead mesquite trees, and of course test and re-plug properly all the abandoned wells that are found to be leaking – and test those that have the potential to leak. Nothing less will satisfy her that Chevron has been accountable for the old, pernicious wells on her property.
Permian Proud website.
In this same time period of July-August 2022, Chevron released a new website called Permian Proud. It’s based on the company’s broader activities in the Permian and includes stories about puppies, football, and oil, as one reporter described it.
One story was about Chevron’s efforts to clean up their carbon emissions, so the website is apparently a mix of popular news and PR.
The website fills a gap, and clearly, Chevron is opportunistic because the report said a third of newspapers in the Permian have died in recent years.
But to be fair, Chevron is an industry that provides a lot of jobs in the Permian as well as secondary support to local businesses.
Chevron is one of five super-majors that delivered an enormous profit in the second quarter of 2022. Their stated goal is “affordable, reliable and ever-cleaner energy essential to achieving a more prosperous and sustainable world.” It sounds like a marvelous goal.
But even the best goals can be derailed. Just this week, a lawsuit has been filed against Repsol, a Spanish multinational energy company, claiming $4.5 billion in environmental damages due to a 10,000-barrel crude oil spill in January 2022.
The confluence of reports on Chevron activities in July-August 2022 is intriguing yet confounding. Profits have soared but the super-major is grappling with environmental issues.
First, the company made over $11 billion in profits in the second quarter of the year.
Second, it has elicited a carefully written report on environmental malfeasance in the Permian basin of West Texas where it makes a lot of that money.
Third, at the same time, Chevron announced a new website, which it pays for, that praises the community relations it has or desires to have with local populations around its operations in West Texas.
Fourth, in expanding its business to alternative energies, another environmental issue, the company bought an independent enterprise called Renewable Energy Group ostensibly to compensate for massive carbon emissions from burning it’s oil and gas. Chevron, it claims, is now one of the leading renewable fuel producers in the United States. But the company it just bought, REG, saves only 0.01% of total carbon emissions from the world, while the oil and gas industry worldwide generates about 50% of all such emissions.