US Lower 48 upstream: the US Majors’ long-term strategic advantage

Big Oil is looking to strengthen upstream production in the mid- to long term as belief grows in stronger-for-longer oil demand. How to go about it depends on the company’s starting point and risk appetite. There’s one point of significant difference in the Super Majors’ peer group – the US Majors are the US Lower 48 tight oil ‘haves’, while their largely conventional European peers are the tight oil ‘have nots’.

I talked to Luke Parker, Vice President, Corporate Analysis, and Robert Clarke, Vice President, US Lower 48 Research, to get their take.

Is US unconventional resource an advantage in a Major’s portfolio?

Yes, because it offers scale, the capacity to churn out volumes in the longer term and the flexibility to ramp investment up or down in response to price. In contrast, investment in conventional oil developments is often all up front. So is cash flow, which, depending on timing, can leave project economics particularly vulnerable to price in the early stages of production.

Isn’t US Lower 48 liquids production about to peak?

Yes, and imminently in our view. Today, crude and condensate production across all US Lower 48 plays is at an all-time high of 11.3 million b/d, up miraculously from 4 million b/d in 2010 with the emergence of tight oil. Growth, though, is coming to an end. We forecast volumes to hold around current levels through this quarter, before entering a gradual decline on reduced investment, due to weak oil prices. Total output is expected to be 0.5 million b/d lower by end-2027.

Will the decline in liquids production affect the US Majors?

No – we expect Chevron’s and ExxonMobil’s production to continue to grow. Their portfolios are focused on the advantaged barrels of the Permian Basin (low breakeven cost, low carbon intensity). The Permian is the premier tight oil play and accounts for almost 7 million b/d of liquids volumes and, unlike most other plays, continues to grow. Both companies have amassed huge Permian positions, and each has over 10 years’ running room in Tier 1 inventory (sub-US$45/bbl, WTI 10% breakeven cost) at current rates of drilling. As the play matures, these leading players are intensifying efforts to reduce capital intensity, including through the use of AI.

We forecast Chevron’s Permian production will increase by nearly 25% to above 1.2 million boe/d by 2030, when it will contribute around one-third of the company’s total output. The aim thereafter will be on maintaining production around that level and maximising free cash flow generation. The Permian is even more important to ExxonMobil, contributing almost a third of 2025 volumes. We forecast output to increase by 55% to 2.3 million boe/d by the end of this decade (equal to BP’s total production) and hold that level through to 2040.

Is gas a big part of the story?

Yes, even more so as demand increases, both to feed LNG exports and a hungry power sector. We forecast Henry Hub prices will increase from the current US$3.50/mmbtu to US$5.00/mmbtu by 2030 (nominal). Though ExxonMobil’s and Chevron’s Lower 48 exposure is oil-weighted, they have material Henry Hub exposure, much of it zero-breakeven associated gas from the Permian. BP has built a gas-weighted US Lower 48 portfolio that currently produces 0.44 million boe/d, around one-fifth of its total production. TotalEnergies has beefed up its US Lower 48 gas position through M&A over the last 12 months to complement its LNG value chain. Equinor has also used M&A to build a leading dry gas position.

Is a lack of US Lower 48 exposure a big deal for a Major?

Yes. Internationally, no individual plays that are open to IOCs can compete with the Permian’s scale, longevity, high margins, low emissions intensity and free cash flow, which, depending on price, will likely increase with play maturity as investment falls. The haves are investing heavily in technology, data and diagnostics to reduce well costs and lower breakevens. Successful implementation will open up marginal acreage and could also deliver upside to recovery factors, currently a measly 10%. Even a modest improvement could release substantial additional volumes.

What are the strategies for the have-nots?

Buying into US tight oil at scale at this mature stage of development seems unlikely. High-quality opportunities aren’t obvious after sector consolidation, while buying into tight oil and its unique ecosystem in the past has often proved a costly mistake for outsiders.

The only real alternative is to pull the other levers available – more exploration, discovered resource opportunities, partnerships and M&A. Total Energies has been the exemplar in building a diverse portfolio with a strong growth trajectory. Similarly, Eni also has top-ranking growth prospects this decade, based on value creation through sustained exploration success, increasingly complemented by business development.

BP and Shell’s flattish production outlook reflects a lack of upstream business development and disappointing exploration results over recent years; in Shell’s case, exacerbated by exiting the Permian in 2021. Both are playing catch-up but have much work to do as they follow through on a strategic pivot back toward upstream. One obvious option for Shell with its huge LNG exposure would be to follow TotalEnergies and re-enter Lower 48 gas production.

Make sure you get The Edge

Every week in The Edge, Simon Flowers curates unique insight into the hottest topics in the energy and natural resources world.

Sign up today using the form at the top of the page.