Exxon (XOM) is Betting on Robots to Unlock a New Permian Oil Boom

A Reuters report on August 24 revealed that ExxonMobil Holdings Corporation (NYSE: XOM ) is looking to dramatically increase the use of automation for its operations in the Permian Basin. The oil giant delivered a record output of more than 1.8 million bpd in the prolific basin in the second quarter, and now plans to boost these numbers by nearly 40% to 2.5M bpd by 2030.

The largest oil producer in the US currently operates more than 30 drilling rigs in the Permian, two of which are automated rigs with robotic equipment. The company is now targeting to transition half of its fleet to automated rigs by 2028 in a push to increase workers' safety and enhance drilling speed and efficiency.

The Permian Basin in Texas and New Mexico is the largest oil-producing region in the United States. Its shale boom helped propel the country among the biggest oil producers in the world. However, the relatively ​steep decline rate of shale wells has pushed drillers to adopt new technologies and techniques to maximize oil recovery.

Exxon's Automation Bet Could Supercharge Permian Growth:

The automation efforts can allow ExxonMobil to increase production without a proportional uptick in drilling costs. The company's aim to eventually automate half of its fleet will help it extract much more value from its existing Permian resource base.

The strategy will also help Exxon to meet its target of $35 per barrel production costs in the Permian Basin this year, and $30 per barrel by 2030. Since Permian wells are short-cycle assets, the automation efforts will enable the company to quickly ramp up production when oil prices are high.

The higher Permian output will also allow ExxonMobil to offset the decline in production in the Middle East to some extent. The company is also highly exposed to the US-Iran war due to its major position in Qatar's LNG industry. As a result, its total ⁠production eased to 4.5 million boepd in Q2, down from 4.6 million boepd in the first quarter. The energy giant also revealed that if Hormuz remains blocked for the entire third quarter, its output in the region would decline by about 750,000 boepd compared with last year.

Automation Won't Solve the Permian's Decline Problem:

Despite the faster rate of production from Exxon's automation push, there are concerns about the long-term sustainability of Permian production due to its steep declining rates. If this decline is faster than expected, the company could have to spend more simply to maintain its production trajectory. The economics of the project could also take a hit if crude prices fall.