Shale Narrative Shift

Bloomberg: America’s Great Shale Oil Boom Is Nearly Over

With the crude price seemingly stuck close to where it is — despite the tensions in the Persian Gulf region which flared up again on Friday —  the next round of discussions between the shale producers and their lenders could be difficult. Some mergers may follow.

Yet fans of U.S. oil shouldn’t be disconsolate. The end of the second shale boom will usher in a third: the period of young adulthood. This will bring a range of new skills, but production will grow at a more measured pace.

This third boom will be driven by the international oil majors and will be characterized by a focus on better extraction, rather than rapid output growth. The application of enhanced oil recovery techniques, consolidation of ownership, automation of drilling, and rationalizing of supply chains will increase the volume of oil extracted over the lifetime of a well and reduce costs. But it won’t deliver the same pace of growth as seen recently.

The recovery rate of oil from shale deposits is typically about 5%-10%, but ConocoPhillips has pushed recovery as high as 20% in some parts of the Eagle Ford shale play in Texas, and it could reach 40% under the right circumstances. The upside to the lifetime recovery rate from Eagle Ford would be huge, potentially extending higher production rates for longer.

The third shale boom is coming. Just don’t expect it to look like the first two.

Bloomberg: Peak Shale: How U.S. Oil Output Went From Explosive to Sluggish

Giants like Exxon Mobil Corp. and Chevron Corp. have plans to expand in the Permian Basin. Unencumbered by the funding problems faced by independent producers, they plan to more than double production by the early 2020s.

Wildest Campaign of the Year

Sidley Ranked No. 1 for Activism Defense

Sidley was ranked No. 1 among law firms for activism defense for the first eight months of 2019, according to data provided by SharkRepellent/FactSet*. The No. 1 ranking reflects 14 public activism campaigns, including the largest director election contest of the 2019 proxy season, Texas Pacific Land Trust in its proxy contest defense against SoftVest and Horizon Kinetics. The Texas Pacific Land Trust defense was also deemed the “Wildest Campaign of the Year” by Activist Insight, marking the second year in a row that Sidley has led the defense in such a campaign.

 

CVX’s Secret Sauce

Reuters: Chevron’s shale allies are its secret weapon in Exxon race

Chevron’s deals, ranging from large-scale joint ventures to small deals where it has leased land to other operators, give it a share of the oil its partners produce.

They also provide data from thousands of wells stretching back years, allowing Chevron to hone drilling strategies. In return, partners get access to areas adjacent to their wells and pipelines, reducing their costs.

Shale drilling has helped the United States reverse decades of declines in output to become the world’s largest oil producer and all the major U.S. oil companies have jumped on the shale bandwagon to boost their own production.

Occidental outbid Chevron for Anadarko Petroleum in a takeover battle this year, spending $38 billion and vowing to use its technology to squeeze more oil from the deal which gave it a combined 3 million Permian acres.

Exxon, meanwhile, spent $6.6 billion two years ago to buy more Permian land and is now running nearly three times more rigs than Chevron in a race to reach its target of producing 1 million bpd of shale by 2024.

But Chevron has two key advantages: it holds 2.2 million Permian acres, second only to the Occidental-Anadarko trove, and it owns mineral rights on much of its land so it doesn’t pay the 20%-25% production royalties most rivals face.

“Eat Our Own Cooking”

WSJ: A Real-Estate Mogul Is Behind the Hottest Stock in the Oil Patch

No, not TPL (right now), but good information nonetheless.  This ‘skin in the game’ ethos gets me fired up.

Mr. Goff first reported a stake in Contango last summer. He bought more than 18% of the company’s shares when they were trading for more than $4 and pushed the company to cut costs, particularly at its headquarters.

Messrs. Goff and Colyer joined the company’s board in August 2018. Mr. Colyer, who was 33 years old at the time and has worked at Mr. Goff’s side for more than a decade, assumed the CEO role. His first move was to cut his own salary in half.

“We’re going to eat our own cooking and keep costs low and try to get the upside,” Mr. Colyer said in an interview.

Messrs. Goff and Colyer said that in addition to running a lean operation in Contango’s Houston headquarters, they are hoping to grow without spending much on drilling, aiming instead to gather wells that are already producing oil and gas.

“There’s a whole host of avenues to grow without drilling holes in the ground,” Mr. Goff said.

September Update Submitted

Trust Retains Credit Suisse as Financial Advisor

DALLAS–(BUSINESS WIRE)–The Conversion Exploration Committee (the “Committee”) of Texas Pacific Land Trust (NYSE: TPL) (the “Trust” or “TPL”) today provided the first in a series of updates on its deliberations.

The Trust, after Trust management and the Committee interviewed a number of potential financial advisors, retained Credit Suisse to assist the Trust and the Committee in developing its recommendation to the Trustees.

The Committee’s deliberations to date have been productive and informative. The Committee has met three times, both in person and over the phone. Although its deliberations are confidential, the Committee will provide monthly progress reports to shareholders as required by its Charter before issuing a final recommendation by the end of year.

The Committee is chaired by John R. Norris III and David E. Barry, the incumbent Trustees of TPL. Its additional members are (in alphabetical order): Four-Star General Donald G. Cook, USAF (Retired); Craig Hodges, Chief Executive Officer of Hodges Capital; Dana McGinnis, Founder and Chief Investment Officer of Mission Advisors; Eric L. Oliver, Founder and President of SoftVest Advisors and Murray Stahl, Chairman of Horizon Kinetics.

Productive.  Informative.  Hired bankers.  Met three times.  Sounds like progress.

Current EVP/COO Sameer Parasnis is a CS alum.