How Chevron Fumbled $20.6 Trillion Worth of Oil

How would you feel if you had a $20.6 trillion fortune slip through your fingers?

Pretty lousy, right? 

Well, that’s precisely what happened to Chevron nearly a hundred years ago. 

Back in 1933, Chevron — or Standard Oil Company of California, as it was known at the time — inked a deal with the Saudis to start exploring for oil. Unfortunately, they weren’t very successful until finally, along with the help of The Texas Company (which you may remember as Texaco), struck pay dirt with their seventh well at Damman.  

The successful oil strike in Dammam wasn’t the kind of gusher like the wells in Texas. Within a month of production, the Damman No. 7 well was pumping out a little more than 3,800 barrels of oil per day. 

I always imagined a pair of oil execs standing atop a sand dune looking down at Dammam No. 7 thinking that life couldn’t get any better — an untapped oil fortune at their fingertips. 

The subsidiary that Chevron had given the concession to was California-Arabian Standard Oil, which later changed its name to Aramco. 

It turned out that everyone wanted a piece of Saudi Arabia’s oil fortune. ExxonMobil (which was still Standard Oil of New Jersey and Socony Vacuum back then) snagged a piece of Aramco. Together, the four giant oil companies fully controlled the immense wealth of black gold beneath the Saudi sands. 

Sadly, it didn’t last, and over time the Saudi crown slowly took over Aramco. In 1980, the takeover was complete and Saudi Aramco ruled atop the oil world. 

Today, the Saudis hold just about 259 billion in proven oil reserves; at the current price of Arab light going for $79.76 per barrel — that’s roughly $20.6 trillion that slipped away from Chevron! 

Over the years, the original Seven Sisters have lost their foothold to the world’s oil. Truth is, the companies we call “Big Oil” today are a shell of what they used to be — ExxonMobil currently only holds about 11.2 billion barrels of liquid reserves. 

This wasn’t isolated to Saudi Arabia, either. 

The world’s giant public oil companies that everyone loves to denigrate today have been kicked out of some of the biggest oil fields in the world. In some cases like Venezuela, their equipment and assets were outright stolen from them! 

Now before you start feeling sorry for them… don’t. 

These supermajor oil companies still hold an incredible amount of value. My point is simply that the world’s true oil wealth – over 85% of global oil reserves — are tightly held by National Oil Companies.

But there’s another common characteristic among the “Big Oil” companies like Exxon, Chevron, BP, and others, that most people don’t realize. 

You see, companies like Exxon cannot grow organically through the drillbit anymore. 

It makes sense, doesn’t it? Why would they take both the time and risk exploring for oil when the company is sitting on a massive war chest? Why not just wait for someone else to do the dirty work, then come in and throw some cash around. 

That’s how it goes, dear reader; the big fish swallows up the little fish in the pond.

In fact, Exxon’s huge $60 billion deal to buy Pioneer Natural Resources this year certainly wasn’t the first acquisition they’ve made in the Permian Basin. Back in 2009, Exxon paid out $41 billion to acquire XTO Energy in an all-stock deal, which gave Exxon a considerable presence in West Texas. 

Time and again we’ve seen Big Oil go back to this playbook; this year alone we could see more than $150 billion in M&A activity in the global upstream sector. 

But you know just as well as I do that the game has changed since the early days of the shale boom, when there was a frenzy of debt-fueled drilling to put as many holes in the ground as possible.

Those days are over, and if you need evidence for it, just keep in mind that the U.S. rig count has been in steady decline for years… There are now just 483 rigs drilling for oil in the United States. 

So what should you look for?

The real value will be in the technology being utilized to both lower cost and boost drilling efficiency. 

Let me show you what I mean…

Today, companies take advantage of a technique called simulfrac, or simultaneous fracturing, which means the operator can fracture several different sections of a well at the same time. By doing so, a company can reduce the time it takes on completing the well. 

In the Permian Basin, a company called Ovintiv (NYSE: OVV) is employing what they call trimulfrac to complete three wells at a time, and is already seeing impressive results. 

This kind of technology is how the U.S. oil output will grow going forward.

Not too far away, my readers and I have found another small Permian oil stock that is taking advantage of another technique. This time, their engineers are able to drastically reduce both the time and money it takes to drill and complete their wells. 

It’s only a matter of time before these new techniques spread like wildfire. 

And you and I both know it’ll attract the attention of whales like Exxon. 

I think it’s time you check them out for yourself.

Until next time,

Keith Kohl

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A true insider in the technology and energy markets, Keith’s research has helped everyday investors capitalize from the rapid adoption of new technology trends and energy transitions. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital, as well as the investment director of Angel Publishing’s Energy Investor and Technology and Opportunity.

For nearly two decades, Keith has been providing in-depth coverage of the hottest investment trends before they go mainstream — from the shale oil and gas boom in the United States to the red-hot EV revolution currently underway. Keith and his readers have banked hundreds of winning trades on the 5G rollout and on key advancements in robotics and AI technology.

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