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.

Fasken Oil & Ranch Ltd

Bloomberg: He Paid $1.50 an Acre for Barren Texas Land Now Worth $7 Billion

Then there’s the holdout, Fasken Oil & Ranch Ltd., still seemingly bound by the fading West Texas ethic that ruled in the days when ranches were handed from generation to generation, with the dictum of “Never sell the minerals” as guidance. “They’re one of the very rare owners that never severed their minerals and surface rights,” Wurtz said.

E&P Consolidation

Bloomberg: Big Oil Circles Permian Riches as Shale Stocks Collapse

Pioneer Natural Resources Co. or Concho Resources Inc., which have both struggled this year, would be a good fit for Exxon, while Shell may look at smaller players like WPX Energy Inc. and Cimarex Energy Co., according to Tudor, Pickering, Holt & Co.

The collapse in valuations has been so severe that the biggest shale producers may also come into play. EOG Resources Inc. and Occidental Petroleum Corp. could also be targeted, Ben Cook, a portfolio manager at BP Capital in Dallas, said earlier this year. Activist investor Carl Icahn is pushing for a shakeup of the board at Occidental.

 

Bloomberg’s Matt Levine Covers TPL

When is a shareholder meeting not a shareholder meeting?

But it’s a pretty solid polling result for Oliver, and if TPL ever does get around to holding the shareholder meeting, it seems likely that Oliver will win. So it is not clear what they gain by postponing the meeting and suing. They have a good legal argument that Oliver did not hold a valid meeting or win a valid election, but as a matter of shareholder democracy he seems to have the support of the trust’s investors, so fighting him forever is a bad look. The dissidents’ main complaint about the current board is that its governance isn’t great and it isn’t responsive to shareholders. When the board cancels and ignores a shareholder vote, that kind of makes Oliver’s point for him.

On the other hand, it’s not all that clear what Oliver would gain by winning. He’d only get one of three seats. On May 8, TPL’s two trustees sent some of the dissident shareholders an email (which was marked “privilege/confidential,” and which the dissidents promptly published, heh) saying “even if you’d prevail in the election contest, you could not achieve any of your ultimate goals without our cooperation until another vacancy opens up (and it may be another decade until that happens).” Not wrong! Perhaps the upshot here is that Oliver will be elected and will just show up to meetings to annoy the other trustees until one of them dies. It could take a while.

One of three seats and a big shining spot light.

Disdain for Shareholders Abounds

Matt Levine at Bloomberg: Carl Icahn Wants an Oxydarko Vote

Without Buffett’s money, Occidental would need to issue a lot of stock to buy Anadarko, triggering a shareholder vote under New York Stock Exchange rules; Buffett’s money, though, replaces some of the stock and allows Occidental to sneak in under the voting threshold. “This is … awkward,” I once wrote; structuring the deal to avoid a shareholder vote seemed to me like “a confession that (1) your shareholders don’t like the deal and (2) you don’t care.”

Permian’s RSG

Bloomberg: ‘Really Smart Guys’ Push to Make Biggest Oilfield Even Bigger

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.”