And now we have … Big Shale?
Some of the world’s largest oil companies, including majors ExxonMobil and Chevron, have pumped up their shale investments recently, targeting increased future production from shale oil plays.
At the same time, some independents have been cutting back on shale spending, in part because of lower oil and gas prices and shareholder demands for improved returns.
The result is a not-so-subtle shift toward shale dominance by Big Oil.
Since the largest oil companies have accounted for only about a fifth of shale drilling in the United States, Big Shale remains a future possibility, not a current reality. Yet the trend toward an increased percentage of shale investment by the majors is unmistakable.
That trend is most apparent in the Permian Basin. Exxon, Chevron, Shell and BP hold an estimated 4.5 million Permian acres. But it also can be seen in other significant shale oil plays, including the Vaca Muerta in Argentina, the Montney and Duvernay in Canada and the so-called “Big Three” U.S. shale plays: the Eagle Ford, Bakken and Delaware/Permian.
Permian per-well oil production by the largest majors might have exceeded long-time independent operators in the basin during the second quarter of 2019, according to Artem Abramov, head of shale research at the analysis and consulting firm Rystad Energy.
“A remarkable observation based on preliminary production data for the second quarter of the year, is the record-high new well productivity for supermajors, which might have surpassed the top 10 public shale E&Ps for the first time since 2014-15,” Abramov said.
Earlier this year, both Exxon and Chevron announced plans to increase Permian investment and activity. Exxon is targeting production of up to 1 million barrels of oil equivalent (boe) per day from the basin by 2024, at a projected cost of $35 per barrel.
In August, the company reported that its 2019 second-quarter Permian production increased nearly 90 percent from 2Q 2018.
Chevron now estimates its total Permian resource at 16.2 billion boe and, in an investor presentation, indicated that the value of its Permian unconventional resource portfolio has more than doubled since 2017. It expects its production in the basin to grow to about 900,000 boe/day by the end of 2023.
Big Oil Catchup
One explanation for the majors’ increased interest in shale is their growing competence and experience in unconventionals, especially shale oil.
While independents pioneered shale plays in the United States, the largest oil companies have made steady progress in acquiring and developing shale resources. For years, Big Oil has been playing catch-up in shale. Now it has caught up.
“Looking back at the majors’ early years of involvement in the shale patch, their performance often reflected a relatively gradual learning curve and displayed a significant share of inferior well results,” Rystad wrote in its shale newsletter.
But that situation “changed dramatically by 2017-18,” Rystad noted, and wrote “when it comes to long-term projections for the majors in the Permian, we see the potential for 300-plus percent production growth between 2018 and 2030.”
Exxon has become the Permian’s most active driller, typically running 40-50 rigs in the basin. But it also has made substantial shale investments elsewhere, especially in the Vaca Muerta in Argentina.
In June, Exxon announced it will proceed with long-term oil development in Argentina’s Bajo del Choique-La Invernada block.
The project, expected to produce up to 55,000 boe/day within five years, will include 90 wells, a central production facility and export infrastructure connected to the Oldeval pipeline and refineries.
Chevron allocated $3.6 billion to the Permian in its 2019 budget and an additional $1.6 billion to other shale and tight-oil fields. It has interests in the Marcellus shale in the U.S. Northeast, the Duvernay and Horn River shales in Canada and the Vaca Muerta.
The company has reported it is one of the largest leaseholders in the Marcellus, with around 428,000 net acres.
In Alberta, Chevron Canada has a 70 percent operated interest in about 215,000 net acres in the Duvernay. At the Horn River and Liard shale basins in British Columbia, the company holds a 50 percent operated interest in 290,000 net acres.
ConocoPhillips reported that about 55 percent of its 2019 capital allocation would target unconventionals in the Lower 48 and Canada.
In the Montney shale in British Columbia, the company estimates it has a resource of more than 2.2 billion boe over a 145,000 net acre position, with a projected cost of supply at less than $40/barrel. It expects a 14-well pad to be drilled and completed in the Montney this year.
In the Big Three unconventional plays, ConocoPhillips estimates 2019 production at about 360,000 boe/day, the majority from the Eagle Ford.
Last year, BP agreed to a $10.5 billion deal with BHP for unconventional oil and gas assets in the Permian-Delaware basin, plus positions in the Eagle Ford shale in Texas and the Haynesville shale in Louisiana.
BP has a stake in the Middle East’s largest unconventional tight-gas resource, the Khazzan field in Oman. The first two Khazzan work phases are expected to develop an estimated 10.5 trillion cubic feet of recoverable gas resources.
In the United States, Shell reported shale holdings of nearly 1.3 million net mineral acres, primarily in the Permian Basin in West Texas and the Marcellus and Utica plays in Pennsylvania. It holds 1.7 million net unconventional acres in Canada, mostly in the Montney and Duvernay.
Shell nearly doubled its Permian production in 2018, to about 147,000 boe/day at the end of the year, with an estimated resource inventory of more than 1 billion boe with a projected break-even at less than $40/barrel.
In Argentina, Shell has started developing three blocks in the Vaca Muerta shale basin: Cruz de Lorena, Sierras Blancas and Coiron Amargo Sur Oeste.
Shell has been one of the few international oil companies to take on projects in China’s shale oil sector. Earlier this year it signed an agreement with a Sinopec subsidiary to evaluate and explore shale resources in the flagship Shengli oilfield in East China.