Six Chevron Corp oil wells being readied for hydraulic fracturing stand in the Permian Basin near Midland, Texas. Both companies on Friday outlined deep cuts in investments in the Permian shale basin. Image Credit: Bloomberg

Houston: Exxon Mobil Corp and Chevron Corp are slamming the brakes on oil output, as the top two U.S.producers plan for combined global shut-ins of 800,000 barrels per day in response to plunging crude prices and fuel demand.

Both companies on Friday outlined deep cuts in investments in the Permian shale basin, the top U.S. oilfield where growth in recent years made America the world’s top oil producer and a net exporter for the first time in decades. They each announced global shut-ins of up to 400,000 barrels per day (bpd) this quarter due to lockdowns to fight the coronavirus pandemic.

Exxon and Chevron have been sidelining Permian drilling equipment since the market started crashing in March. U.S. crude prices have plunged nearly 70% this year to under $20 a barrel, and traded in negative territory on April 20 for the first time ever.

Oil and gas output at both U.S. producers rose in the first quarter with the companies racing to produce 1 million barrels per day in the Permian. Then fuel demand sank nearly a third due to travel and business lockdowns, while a flood of Russian and Saudi oil hit the market when they abandoned production cuts.

“We would intend to bring activity back to the Permian when we see prices recover,” Chevron Chief Financial Officer Pierre Breber said in an interview.

The two oil majors spent heavily in the last two years to expand in the Permian. Shale production can be brought on faster than deepwater and other oil exploration projects but requires near-constant drilling to maintain output.

Exxon’s biggest cuts will come in the Permian, “where the short-cycle investments are more readily adjusted,” said Exxon Chief Executive Officer Darren Woods.

He added that because shale wells produce big volumes at first and then decline rapidly, it is “beneficial in long term” to ensure “we’re bringing those high production rates into a market that’s more conducive.” Exxon will sideline 75% of its Permian drilling rigs, keeping 15 working.

The company posted a $610 million first-quarter loss, its first quarterly loss in three decades, on a nearly $3 billion inventory writedown reflecting lower margins and prices. Chevron posted a $3.6 billion profit on asset sales and improved refining results, and also said it would further reduce spending this year.