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ExxonMobil, Chevron: Turning The Permian Into A Manufacturing Operation

Today’s Energy Update
(Because Energy Fuels Our Lives)

The exploration for oil and natural gas has always been among the most risky propositions in the business world. The major risk today, in the new age of shale, revolves around raising capital and satisfying investors, but throughout the 19th and 20th centuries, the bigger risk centered on finding the pockets of oil and gas contained within conventional sand and limestone formations.

This was often a very tricky proposition, and the drilling of dry holes outnumbered the successful wells in many major play areas. The tales are legion of the independent producers who went flat dead broke before ever managing to drill a producing well. “Dad” Joiner, the promoter and ultimate driller of the Daisy Bradford No. 3 – the first successful well completed in the mammoth East Texas Field on October 3, 1930 – famously went broke half a dozen times and required an influx of capital from H.L. Hunt before finally bringing in his gushing discovery well.

That dynamic all began to change in the late 1980s with the discovery and development of unconventional formations like the Fruitland Coal in the San Juan Basin of New Mexico. Operators like Burlington Resources, Amoco and Devon Energy (DVN) soon realized that, once the geographic extents of the formation had been fully delineated, the risk of drilling dry holes soon diminished to near-zero. Once that determination had been made, you drilled a vertical well, conducted a smallish hydraulic frac job and de-watered the surrounding rock to cause the methane gas to be released from the coal.

At that point, the main considerations became how to re-use, dispose of or sell the largely-potable water that came up out of the wells, and building out the necessary transportation and processing infrastructure needed to get it to market. Once those concerns had been addressed, these companies and many others found themselves in what was essentially a true manufacturing environment

A true manufacturing environment is one that is highly-predictable, consistently repeatable, requires known raw materials (i.e., sand, pumps and frac water), deploys specific infrastructure, and involves the disposition of waste materials. The Fruitland Coal fit every aspect of that definition: Many other unconventional plays soon followed.

Shale plays, once fully delineated, all end up incorporating the same features of true manufacturing operations. Thus, when both ExxonMobil (XOM) and Chevron (CHV) issued this week’s announcements that their companies would deploy a high percentage of their respective capital budgets in the coming years in efforts to dramatically increase their production from their Permian Basin operations, it did not represent a new concept for the U.S. oil industry. It’s just that these two major, fully-integrated companies have the ability to conduct such operations on a far grander scale.

For those who may have missed those announcements, Chevron said it plans to produce 600,000 barrels of oil equivalent (boe) from its Permian operations by 2020, ramping that up to 900,000 boe by 2023. ExxonMobil anticipates being able to increase production from its 1.6 Permian position from roughly 200,000 boe today to 1 million boe by 2024. Both numbers are truly astonishing.

Read the Rest Here

 

Follow me on Twitter at @GDBlackmon

Today’s news moves at a faster pace than ever. Whatfinger.com is my go-to source for keeping up with all the latest events in real time.

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While Politics Dominates The News, Big Oil Invests In Global Energy Reality

One of the big concerns during the depths of the oil price bust of 2014-2016 was the fact that so many big, integrated and state-run oil companies were delaying or taking a full pass on investing in major and highly-costly international projects. During the financial retrenchment of this dark period, exploration for major new resources consistently took a back seat to finding ways to pay the bills and service the company’s debt.

This lack of investment in new exploration and infrastructure projects led to concerns among many energy analysts that we could be facing a shortage of global supply early in the next decade as decline rates caused existing reserves to play out without the needed new production coming on line to replace them.  The surge in new supply from U.S. shale plays has served to alleviate those concerns for the near-term, and a new report issued by the Norwegian research firm Rystad Energy documents a similar surge in new international investments that should help avoid supply shortages further down the road.

“We expect global FID volumes in 2019 to triple over last year, and 2019’s megaproject awards could lead to billions of subcontracting dollars in coming years,” said Rystad Energy upstream research analyst Readul Islam, “The only supply segment likely to shrink this year is the oil sands, whereas deepwater, offshore shelf and other conventional onshore developments are all poised to show substantial growth. From a geographical perspective, all regions are headed for robust growth except Europe and North America, still bearing in mind that shale plays are not included in these numbers.”

That last point – that shale plays are not included in this report – is key. As I pointed out last week, the Permian Basin has become a focal point for major development not just for big independents like Pioneer Natural Resources, Noble Energy, Apache Corporation and others, but also for major, integrated companies like ExxonMobil, BP, Shell and Chevron. These U.S. shale plays are likely to sustain significant production growth for years to come, giving the big investments documented by Rystad in its report the running room they need to move from final investment decisions to first production, which can easily consume five-to-seven years.

So, if you’ve been wondering why all those stories about concerns of a looming supply crunch on the horizon have disappeared from your daily news clips, this is the reason.

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Is an Oil Price Train Wreck Hiding Around the Bend?

Today’s Energy Update
(Because Energy Fuels Our Lives)

The energy media has recently featured headlines that seem at odds with one another and that, when taken together, portend the possibility of a coming train wreck somewhere down the road where crude oil supply and prices are concerned. Let’s look at some of the more recent headlines as examples:

“The U.S. Shale Boom is About to Get a Major Upgrade” – Investors Business Daily, Feb. 19

“Wall Street Calls for Better Returns; Shale Gets Thrifty” – Gulf Times, Feb. 17

“OPEC Cuts Send Crude Exports to Lowest Since 2015” – Financial Times, Feb. 19

“U.S. shale oil output to hit record 8.4 million bpd in March: EIA” – Reuters, Feb. 19

That Investor’s Business Daily story begins by stating “The U.S. shale oil boom is about to get a whole lot bigger. The reason: Giant oil companies like Exxon Mobil (XOM) are leveraging their massive scale to unleash more production from the top-producing shale oil formation.”

The EIA projects that the domestic industry will push U.S. oil production past the 12 million barrels of oil per day (bopd) level for the first time in the nation’s history in March, with 70% of that coming from shale plays. Fully 1/3rd of all oil produced in the U.S. in March will come from the Permian Basin alone.

Follow me on Twitter at @GDBlackmon

Today’s news moves at a faster pace than ever. Whatfinger.com is my go-to source for keeping up with all the latest events in real time.

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