While the U.S. shale revolution has boosted American oil production to a record, it’s also leaving lots of crude in the ground. At best, fracked wells only recover about a 10th of what the industry calls the oil-in-place.
“We are trying to be very conservative, but certainly we believe that we can improve from 10-11 percent to 17-18 percent,” Occidental Chief Executive Officer Vicki Hollub said in an interview in Houston. “It’s a lot. When you consider the scale of the Permian basin, to do that will be amazing.”
Appears as if some of the first movers overplayed their hand a bit.
“Is there a parent-child relationship? Absolutely. Has it been there since time immemorial? Absolutely,” Diamondback Energy Inc. CEO Travis Stice said at the conference. “It’s our responsibility to account for the economics of the degradation between a parent and child well, and it’s our responsibility to dial that into our forecast.”
Stice said Diamondback hasn’t had to cut back its activity in response to those issues, like some of its peers who have had to widen spacing after production failed to live up to expectations.
“I think what you’re seeing is reserve reports coming out at the end of last year with a lot of negative performance revisions in there,” he said. “That’s really the first tell as an industry that you’ve overcapitalized your assets.”
Well, more than one maintenance event appears to have coincided with the cratering prices, so we’ll start with those. On March 18, the same day that negative prices emerged yet again, Kinder Morgan’s El Paso Natural Gas (EPNG) pipeline announced a force majeure that reduced capacity by about 200 MMcf/d on its Line 2000, which flows west out of the Permian. While this event was widely cited as a culprit, our analysis of flow data indicates that the gas previously flowing on Line 2000 has been largely re-routed to EPNG’s other two legs that flow west: Line 1600 and Line 1100. Re-routing gas sometimes requires producers to acquire additional transportation capacity to move their gas, which can mean that supply prices have to be bid lower to cover the additional cost of transport.
Two side to every story.
An extension to the Sunrise Pipeline added an estimated 120,000 barrels per of takeaway capacity from the Permian region earlier this year, boosting pipeline capacity to Cushing, the EIA said. Another pipeline delivering natural gas liquids from the Permian to the Gulf Coast, the Seminole-Red pipeline, was repurposed to deliver crude oil. Seminole-Red is expected to be fully operational by April, adding an estimated 200,000 barrels a day of takeaway capacity.
Although Permian production is expected to grow, the additional pipelines will prevent Permian prices from falling to the same steep discounts that occurred in second and third quarters of 2018, the EIA said.
Looks like this is a terminal only article right now so I won’t do my normal block quotation routine.
It is notable that Eric Marshall at Hodges commented in the article about executive comp as being “surprising.” That’s another large holder that isn’t pleased.
Tim Schwartz commented that he is in the corner of HK management and will go with company’s proposed plan at the meeting in May.
Not sure I’d qualify a party that 1) has a 20yr+ history with a stock and 2) controls ~25% of the float as an “activist”. Term seems too strong. The rest of the article linked above is a good recap of what we’ve seen play out in recent SEC filings.
Horizon Kinetics LLC, which owns a 23 percent stake, has urged the trust to modernize its structure and appoint Eric L. Oliver after the previous trustee stepped down due to ill health. Texas Pacific said March 4 that its trustees nominated Preston Young for the position.
Chief Executive Officer Tyler Glover, in an email Monday, defended the company, pointing to a more than 40 percent increase in its stock price in the last year. He called it an “impressive market performance” he credited to “active management of our expansive asset base and other steps taken to position the Trust for continued growth.”
In its filing, Horizon Kinetics wrote that it wants to make Texas Pacific a Delaware corporation “subject to modern governance principles” and better develop a division that supplies the oil fields with water, it said.
Oliver, Horizon’s choice as a trustee, is one of the shareholders who signed the cooperation agreement through his SoftVest Advisors LLC, as is financier Allan R. Tessler, who owns stock through several entities. Horizon also wants management to provide more information to shareholders such as drilling updates, water production and engineering reports.
The fund “believes that the Trust should be more transparent and frequent on its updates to holders of securities,” it said in the filing. A Horizon spokesman declined to comment beyond the filing.
If I had a nickel for every XOM/Permian story published this week I’d have at least a buck.
Development, operating and land acquisition costs will be “in and around $15 a barrel,” he said on the sidelines of the CERAWeek Conference by IHS Markit in Houston. West Texas Intermediate futures traded at almost $59 on Thursday. “The way we are approaching it is very unique compared to most, if not really everybody out there, as far as the scale,” he said.
Exxon plans to deploy 55 rigs in the Permian this year, by far the most of any driller, as it aims to increase output in the region fivefold to about 1 million barrels a day by 2024. Its strategy also includes building its own takeaway infrastructure from separation tanks to pipelines, and it’s even joining a giant conduit project to make sure its oil doesn’t get stuck in bottlenecks that have depressed prices in West Texas.
Exxon’s Permian expansion pits it against U.S. rival Chevron Corp., which is also aiming for strong growth there. The San Ramon, California-based company announced plans last week for 900,000 barrels a day by 2023. Royal Dutch Shell Plc is “actively looking” for deals to bulk up its Permian operations, Wael Sawan, the company’s upstream director-in-waiting said this week. Even so, its production will increase about 30 percent a year.
In the next five years, Chevron expects to more than double its production in the Permian Basin in Texas and New Mexico to 900,000 barrels of oil and gas a day, the company announced at an investor event Tuesday. That’s a nearly 40% increase from its previous forecast.
“The shale game has become a scale game,” Chevron Chief Executive Mike Wirth said in an interview. “The race doesn’t go to the one who gets out of the starting blocks the fastest. The race goes to the one who steadily builds the strongest machine.”
Not to be outdone, Exxon on Tuesday announced plans to increase its Permian output to 1 million barrels of oil and gas a day by as early as 2024, a day before it was expected to disclose growth at its own investor meeting Wednesday. BP PLC,Royal Dutch Shell PLC and Occidental Petroleum Corp. are also focusing on the region.
Five years ago, Exxon, Chevron, BP, Shell and Occidental collectively made up about 9% of crude production from modern fracking techniques in the Permian. In October, the latest period for which relevant figures are available, they made up about 16%, according to data on ShaleProfile, an industry analytics platform.
Meanwhile, the big companies are just getting started. Exxon is now the largest operator in the Permian, with almost 50 rigs. The company estimates its Permian wells can generate a 10% rate of return at an oil price of $35 a barrel. While many companies reduced fracking activity in the fourth quarter of last year, Exxon increased it significantly to over 80 wells, more than double the total in the fourth quarter of 2017, according to Rystad Energy.
Chevron is raising its production guidance to 900,000 barrels of oil and gas a day by 2023. Last year, it predicted 650,000 barrels a day by 2023. The company is boosting production without adding to its rig count, a testament to how size can lead to greater efficiencies.
Chevron employed what could be described as a tortoise-and-hare strategy in the Permian. While smaller companies at times paid more than $40,000 an acre to gain rights to prime drilling opportunities, Chevron held on to land it already owned in the region, which decades ago was one of the world’s biggest traditional oil fields, without having to join in the buying frenzy.
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Within hours of each other on Tuesday, the two largest energy companies in America announced they want to pump almost 2 million barrels a day combined in the Permian Basin of west Texas and New Mexico, a higher amount than most OPEC nations. Chevron plans to reach 900,000 barrels a day by 2023, while Exxon aims for 1 million by 2024.
“Our position in the Permian just continues to get better and underpins our resource base,” Chevron Chief Executive Officer Mike Wirth said in New York. The value of the company’s Permian position has doubled over the past two years with reserve additions, he said.
Demand for water to use in fracking in the Permian has more than doubled from 2016 levels, according to industry consultant Rystad Energy. Demand should grow to more than 2.5 billion barrels by next year, accounting for nearly half of all U.S. oilfield needs.
“It used to be you’d get a great cow ranch that had good grass for your cattle, and hunting or recreation was an add-value revenue stream and discovery of oil or gas was also this cream on the cake,” Uechtritz said. “Now, it’s wind and water.”