ExxonMobil’s top executive wants his company to double recovery, mainly in the Permian Basin, pinpointing unconventional resources.
Recent trends in the Permian say it won’t be easy. Or cheap.
Darren Woods, Exxon CEO, spoke at the annual Bernstein Strategic Decisions Conference in New York City at the beginning of June.
“I think we’ve seen the initial rush of shale and understand that proposition there. I think there’s still a lot of technology to unlock that’s still relatively immature in its development cycle. We’re still only recovering about 10 percent of unconventional resources,” Woods said.
“And so there’s a lot of oil being left in the ground based on industry’s ability to tap into that and recover that oil. That’s actually one of the areas we’re very focused on,” he added.
Playing a New Game
ExxonMobil acquired XTO Energy in 2010 in a deal valued at around $40 billion. Former Exxon chief Rex Tillerson later acknowledged the company paid too much, in light of a subsequent decline in oil and natural gas prices.
But Exxon gained unconventional resources development expertise and a foothold in what became the hottest play area in the United States.
“When we bought into XTO and got into the unconventional business, one of the challenges I gave the organization is, I called it a short game. All these independents are playing very short-term games in the unconventional space. We’re kind of a long ball hitter,” Woods noted.
“My challenge to the organization was to double recoveries, and to find technologies to unlock that. And that’s been a kind of five-year program,” he said.
In terms of overall output, Exxon could be on track to reach its goal. Reporting full-year 2022 results, the company announced that its Permian holdings delivered record production of more than 560,000 oil-equivalent barrels per day in the fourth quarter.
The Texas Railroad Commission listed Exxon/XTO as the fourth largest oil producer and third largest casinghead gas producer in the basin in 2022.
“In the Permian Basin, we maximized the value of our large acreage position through technology and the scale of our integrated operations, increasing production by nearly 90,000 oil-equivalent barrels per day year-over-year,” Exxon reported in its latest annual report.
It later said Permian production had climbed to 615,000 oil-equivalent barrels a day in the first quarter of 2023. That continued a string of annual Permian output increases for Exxon, rising by as much as 20 percent annually.
Leveraging Tech for Enhanced Production
But Woods appeared to be discussing Exxon’s unconventionals recovery rate, specifically oil recovery. In gas-rich shales, the recovery rate can be much higher: 15-20 percent. Media coverage of the speech centered on the oil-recovery figure. Can it be dramatically improved?
“In short, yes, you can increase recoveries in unconventionals … at a cost,” said Ryan Hill, vice president of intelligence for energy analytics company Enverus in Calgary.
“The technologies/operations mentioned by XOM are not new, (and) can certainly increase recoveries, but can become very expensive as you travel up the recovery ladder. Most if not all operators have figured out the right spot for their company when balancing costs, return metrics and commodity pricing,” he noted.
Specifically, Hill cited more precise frac’ing and balancing increased completions costs with higher returns from precise placements and better recovery as an economic approach to improving rates.
“More precise frac’ing is the one that is the more material lever relative to cost, in my mind,” he said.
In fact, Exxon has directed its unconventionals research toward efficiencies in hydraulic fracturing, Woods said.
“If you look at the unconventional world, frac’ing’s been around for a really long time, but the science of frac’ing is not well understood,” he observed.
“There are very few companies or organizations out there than can tell you exactly how fracs propagate and what fracs look like underground. Our view is, that’s just a hard-science project, (a) problem to solve,” he said.
Challenges include designing and employing effective fractures along the whole lateral length and keeping those fractures open to maintain flow, according to Woods.
“One of the challenges with long laterals is how do you efficiently frac along that entire lateral, make sure that you’re opening the rock up along that entire length. We’ve been doing a lot of work there and see some really good progress around improving the ability to frac along a very long lateral,” he said.
“And then the other big challenge in terms of recovery is, once you get those fracs, how do you keep them open so that the resources will flow? That in my mind is where the first wave of technology will come into the field, and we think we’ve got some promising techniques to employ here that will significantly improve our recovery,” he added.
More Options
Hill said other steps Exxon might consider in improving recovery are:
- Limiting pressure drawdown impacting frac-closure “intensity” and early-life bottomhole pressure drawdown
- Gas-cycling enhanced oil recovery, utilizing gas to repressurize depleted reservoir and improve liquids recoveries, “with potential ESG benefit on the CO2 cycling side”
- Adjusting proppant operations to use high crush-strength proppant or vary mesh size, although that “doesn’t appear to be the lever XOM is focused on”
Other efforts might involve well design and well spacing. At the Unconventional Resources Technology Conference last month, a team from Exxon discussed using monitor wells and frac diagnostics to help optimize development.
With time-lapse geochemistry showing wells in multiple benches competing for the same resources, frac and reservoir models suggested “the need to increase hypotenusal distances between wells to mitigate interference,” the study found.
Tracking Results
The U.S. Energy Information Agency publishes a drilling productivity report with a focus on seven U.S. producing areas, including the Permian. The report has shown a steady increase in new-well production levels for both Permian oil and gas, up to about 2021.
After that, new well production growth has declined. A possible implication is that improved results from longer laterals and more efficient fracs have a limit.
EIA’s tracking of new-well productivity in the Permian over the initial three months of output also has shown signs of leveling off. Exxon might be fighting the current in its effort to improve recovery rates and facing an expensive challenge.
Woods said ExxonMobil doesn’t try to forecast – nor guess – future oil prices, but purposefully keeps its upstream breakeven costs low.
“If you look at our breakeven cost on a straightforward investment basis in the upstream, we’ve been very public about we’re going to keep it below $35 per barrel, and then as you look at each of our products, some of them are much lower than that,” he said.
Exxon does have a variety of tools and possibilities available to improve its Permian recovery, and breakthroughs are always possible. In unconventionals, Woods said, the company is “beginning to see the signs of some, I think, very promising new technologies to better unlock some of that resource.”
“We have always had a strong technology program. We’ve always spent about a billion dollars a year on research and development of technology. We’ve recently consolidated all of our technology and research into one core corporate organization to focus that effort,” he said.
“At the heart of what we do, is technology.”