Dividends and Oil majors go all in on US shale

If you asked where is the most productive oil drilling program in the world right now? Would you have answered in Texas? The Permian Basin is an area in Texas and New Mexico where the biggest oil companies in the world has made the US the world’s top oil producer. In an article by Jennier Hiller of Reuters more importantly, the oil major companies are continuing to commit billions of dollars and they believe if oil prices go up that is great, but if oil prices go down, they still make money.

The oil giants have pipelines, trading, logistics, refineries, chemical businesses based in the area. Exxon operates 48 drilling rigs and plans to add 7 more this year. There is a book or many books about Exxon and their engineers typically only do projects when there are double digit returns. Exxon chief exectutive Darren Woods said the size and buisesses could allow Exxon to earn double digit percentage returns even if oil prices were less than $35 barrel. When the article was written the number was $58. Exxon will be doubling the capacity of a Gulf Coast refinery to process oil.

According to IHS Markit’s Daniel Yergin the Permian Basin is expected to generate 5.4 million barrels a day by 2023, more than any single member of OPEC other than Saudi Arabia. Exxon, Chevron, Shell and BP hold more than 5.4 million acres and are poised to pass the independent Pioneer Natural Resources.

Linking to dividend paying stocks, for over 100 years owning the big oil companies has been a healthy dividend pay and good for capital gains. While climate change is something all companies have to deal with, the reality is the economy is still dependent on oil and until the world makes the big shift, oil companies are a good fit in your portfolio.

There are more questions than answers, till the next time – to raising questions.

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