Know these—viscosity, velocity and proppant size—and you have the advantage.
“You have to know the rock and be able to innovate quickly,” Phil Webb, COO of Surge Energy America, told attendees at Hart Energy’s Executive Oil Conference on Nov. 7.
“The tools to steer wells are incredible today, and now the effort is to accurately quantify the subsurface volume,” said Allen Gilmer, co-founder and executive chairman of Drillinginfo Inc. The goal, said members of the event’s “positive sum production” roundtable, is to wrest as many barrels of oil equivalent per day as possible per dollar invested. The conference kicked off with a focus on the Permian, which for supermajor Shell Oil Co., is home, sweet home.
Shell views shales as a complement to its vast international and deepwater portfolio, according to Gretchen Watkins, the company’s executive vice president for upstream unconventionals. Shell plans to grow its Permian production from the current average of 120,000 boe/d today to 200,000 boe/d by 2020.
“Reducing flaring is critical for the industry’s social license to operate,” Watkins said, adding that economic production also was key. She said Shell has stopped installing flare stacks on its new well pads in the Permian.
Another discussion concluded that the Permian is primed for a coming wave of consolidation. Panelists included Mike Marziani, executive vice president and CFO for Tall City Exploration III LLC; James Walter, Co-CEO of Colgate Energy LLC; and Chris Atherton, president of EnergyNet.
The panelists examined pricey tracts of land in the basin. Bids on the U.S. Bureau of Land Management’s 50,000 acres in New Mexico totaled $972 million. That’s partly because the acres are in the prolific Delaware Basin and partly because the tracts are longer. Prices for side-by-side parcels swung from $300 to $2,500 per acre based on the ability to accommodate 2-mile laterals.
Very large firms will be able to swallow a percentage of leaseholds with a low cost of capital, with the result that the big get much bigger, panelists said. As these companies consolidate, they will shed noncore assets down the chain.
For the smaller companies, the story is a bit different. Panelists said it is likely that small to midsized Permian E&P companies can expect stock-heavy offers and a pittance of cash these days.
The importance of the basin was underscored by Reed Olmstead, director of North American onshore research and business development for IHS Markit. The dramatic growth in U.S. crude oil supply—1.3 MMbbl/d in 2018 alone—is propelled by strong Permian Basin production.
As takeaway constraints are relieved, Olmstead believes U.S. crude supply will grow another 1.5 MMbbl/d in 2019, but pipeline bottlenecks will likely keep Midland and Cushing, Okla., hub differentials wide well into next year, with no easing expected until 2020, he said.
The entrance of global operators into the Permian will change the activity profile of the play, said members of the takeaway roundtable. That is because programs executed by multinationals tend to be stable and less sensitive to volatile oil prices.
Steve Pruett, president and CEO of Elevation Resources LLC, said there are lots of incentives for companies to delay completions at the moment, but this is just a pause. At this point, he sees uncertainties aboveground outweighing those below the ground.
One issue to be reckoned with: water.
“We plan for water as much as we plan for oil,” said Carrie Endorf, vice president for reservoir engineering and planning at Parsley Energy.
But once those issues are resolved, those massive volumes of Permian crude need a destination, said Joel Fry, principal at Tailwater Capital.
“It has to be exported, and we need the infrastructure and the market destinations for Permian Basin crude,” he said. “It’s a global issue.”
The U.S. independent has set its sights on bringing in $50 billion in free cash flow over the next decade, including $19 billion from its Lower 48 assets.
The discovery located in state waters offshore Alaska could hold as much as 10 billion barrels of oil in place.
The industry’s focus is expected to remain on capital allocation, people and supply and demand next year.