Bigger Is Not Always Better
America has been hammering away at horizontal shale oil wells now for over a decade, nearly 83,000 of the damn things, in fact. They've been drilled short, long, fast and slow; they're either too close together or too bloody far apart. Some make water; all of them make more and more associated gas. They've been frac'ed with slick water, stuffed with sand from Wisconsin to West Texas and every kind of technological do-dad imaginable has been stuck into unconventional HZ wells, from sliding sleeves to frac plugs that dissolve into thin air. These wells have been analyzed plum to death by anybody with a computer and spare time on their hands; as analysts like to say, 'data is the new oil.' There are NO secrets on the boulevard anymore, about anything, in the shale patch; buy a frac consultant a few cold beers and a plate of cheese enchiladas and he'll spill the beans on anybody.
So after carefully observing this "revolution" for the past ten years you'd think major integrated corporations that jumped into the Permian Basin fray in 2016 would roar out of the chute ready to knock the socks off shareholders with awesome wells, right? These guys have got thousands of engineers, R&D departments bigger than Fort Stockton and there are 23,839 examples to follow right there in their backyards.
Here are two charts, above, from shaleprofile.com for all operators in the Permian Basin showing well productivity in barrels of oil, normalized per 1000 feet of horizontal lateral. The top chart is daily oil production, the bottom is cumulative oil production; light orange is 2016, dark orange is 2017, light blue is 2018 and dark blue is 2019 thru August. As we have pointed out several times recently on Oily Stuff, oil productivity has not increased significantly since 2Q 2016 in the Permian Basin. It's a pretty good idea, we believe, to check the BOE horse dookey at the door these days.
How do major integrated corporations like Chevron and Exxon stack up against the rest of the playing field in the Permian Basin, are they still in their "learning curve" and are they drilling bigger and better wells as time goes on?
Does not appear so, no.
The next two charts, above, for only Chevron and Exxon Permian HZ wells, shows well productivity in barrels of oil normalized per 1000 feet of lateral. The top chart is daily oil production, the bottom chart is cumulative oil production; light orange is 2016, dark orange 2017, light blue 2018 and dark blue is 2019, thru August. We can see here that 2018 was better than 2017 but then well productivity fell in 2019 and is actually considerably less than all other operators in the Permian when normalized per 1000 feet of lateral length.
On a productivity ranking list for all operators in the Permian, that puts Chevron at No. 36 down on the list and mighty Exxon dragging up the rear at No. 48.
Everybody's getting gas in the Permian Basin these days and apparently Chevron and Exxon are not immune. The above chart shows just how significant these two corporation's GOR's are in both sub basins and how quickly GOR is rising. That might have a lot to do with how poor their oil productivity is compared to other operators.
3Q2019 Exxon spent $3 billion on its upstream E&P efforts in America and earned $34MM, a little over 1.1% (see IEEFA, here). In a business where assets decline over 70% the first year of "shelf" life, that sucks. The more cash Exxon blows thru drilling lousy wells in the Permian Basin the worse it's credit ratings get and Moody's just downgraded its debt to "negative."
What's the bottom line on all this hooey?
The big boys will not be able to do the shale oil thing any better than anybody else has done. They will squeeze service providers to death to lower costs and mass manufacture unconventional horizontal wells by the thousands, then send that oil downstream to benefit their own refinery margins. They're production levels in the Permian will grow but productivity has nothing to do with profitability.
The era of inexpensive crude oil extraction is over and what is left has been, and is going to be woefully unprofitable to produce. How long that business model is sustainable is a function of how deeply in debt Americans are willing to become.
Shaleprofile.com and Shale Profile Analytics uses realized production data filed with various state regulatory agencies in America by operators themselves. In Texas, for instance, once a barrel of oil leaves the leasehold premise headed for market it must be accounted for, to the tenth of a barrel, and reported to the Texas Railroad Commission. The crude oil buyer also reports the oil bought from that lease, or unit, to the tenth of a barrel and reports to the TRRC. The two separate filings must balance, exactly. Investor presentations and cheerleading analyses aside, there is NO lying to the TRRC. Shaleprofile.com IS the no spin zone.