permian sustainability and scoop/stack competition · 2020. 4. 17. · woodmac.com 2 the pre-fid...
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woodmac.com Trusted commercial intelligence
Robert Clarke, Research Director – Lower 48 Upstream
Permian sustainability and SCOOP/STACK competition
The battle to stay at the bottom of the cost curve
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The pre-FID cost curve in 2025: Permian and Eagle Ford dominate
Other themes are competitive, but focus is needed on project execution
Permian sustainability and SCOOP/STACK competition
Source: Wood Mackenzie Oil Supply Tool, point forward breakevens weighted by 2025 liquids production, 15% discount rate. H1 2017 dataset
Onshore OPEC
Deepwater Brazil
Bone Spring
Wolfcamp
Other US L48 Tight Oil
Deepwater other Non-OPEC
Eagle Ford
Vertical wells US Lower 48
Bakken
Mid-Continent
Shallow Water other OPEC Shallow Water other Non-OPEC
Onshore other Non-OPEC
Shallow Water Europe
Deepwater US
Offshore Nigeria
Canada Oil Sands
Offshore Angola
Niobrara
0
20
40
60
80
100
120
0 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000 11000 12000
Bre
kev
en
US
$/b
bl
Bre
nt
eq
uiv
ale
nt
Liquids production 2025 (million b/d)
Deepwater
Shallow water
Onshore
Lower 48 Tight Oil
Weighted average breakeven based on 2025 production
0 1 2 3 4 5 6 7 8 9 10 11 12
Brazil a major contributor but a
significant proportion of pre-FID
projects already sanctioned so
not included
Pre-FID and US L48 future drilling production by breakeven in 2025 – by resource theme
Permian sustainability and SCOOP/STACK competition woodmac.com 3
• For the first time ever, our
models indicate that >50% of
undrilled US tight oil resource
breaks even below US$50/bbl.
• The reduction was a story of
two variables….costs and
productivity.
• Using the Delaware Basin as an
example, EUR per lateral foot
doubled and development costs
per barrel fell by nearly a half.
• Technology has had a double
impact: tangible OFS
equipment upgrades and big
data analytical models.
How did US tight oil move to bottom of the global cost curve?
More importantly, is its current position sustainable?
Current Lower 48 liquids cost curve: Permian assets add volume and
SCOOP/STACK sections of the curve drop
$55
$0
$20
$40
$60
$80
$100
$120
$140
$160
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
WT
I b
reakev
en
at
15%
IR
R (
US
$/b
bl)
Percent of cumulative undrilled liquids resource remaining
Q3 2017 Q3 2016
Q3 2015 Q3 2014
The addition of massive Wolfcamp
reserves, largely in the Delaware,
effectively stretch the curve to the right.
Lowest cost portions of the curve see the last
impacts of acreage highgrading and Permian
project efficiencies gaining traction.
Mid-continent tight oil drops >US$5/bbl.
Room to run in SCOOP/STACK and
Cana, but is it enough?
Permian sustainability and SCOOP/STACK competition woodmac.com 4
Source: Wood Mackenzie
Activity recovery is multi-basin, but the magnitude of
metrics evolution is not consistent across geographies.
In a more established play like the Eagle Ford, changes
in productivity slowed, so higher costs had a more
measurable impact.
The decrease was smallest for Permian sub-plays.
Although productivity gains in these areas were
substantial, the Permian is also seeing some of the
highest cost inflation. Anticipate the Mid-con making up
more ground in 4Q17.
Higher costs stop the downward breakeven trend in core acreages
Asset in spotlight: Eagle Ford Karnes Trough Permian stable, Mid-con falling fast
$0 $10 $20 $30 $40 $50
Delaware W. Frontier
Eagle Ford Karnes Trough
Eagle Ford Edwards Cond.
Midland Deep Basin
SCOOP Core Wfd.
STACK Oil Miss.
WTI breakeven at 10% IRR ($/bbl)
Last update 2016 Current update 2017
Source: Wood Mackenzie
$35.08
$31.94
$49.34
$0
$10
$20
$30
$40
$50
$60
WT
I b
reakev
en
at
10%
IR
R (
$/b
bl)
Source: Wood Mackenzie
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Largest YoY
Reduction
Permian sustainability and SCOOP/STACK competition
Given the subsurface variability in the play, our production
forecast has traditionally been modest. However, with 2017
derisking efforts in large areas of the STACK, production in
2019 nearly doubles from what we modelled last year.
Quality gap between the core and non-core areas is massive
though. The SCOOP has the most room for improvement if
operators can successfully de-risk the larger areas.
SCOOP, STACK & Cana production, economics and running room
Tremendous shift in outlook Breakevens and remaining locations
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1000
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$-
$10
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Merg
e
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ST
AC
K M
iss
ST
AC
K O
il M
iss
NE
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AC
K O
sw
SC
OO
P C
ore
Wfd
NE
ST
AC
K M
iss
SC
OO
P C
ore
Spr
Cana W
et G
as W
fd
Cana W
et G
as M
iss
ST
AC
K O
il W
fd
Hoxbar
SC
OO
P O
il W
fd
SC
OO
P C
ondensate
Wfd
SC
OO
P A
rdm
ore
Wfd
Rem
ain
nig
lo
cati
on
s
WT
I b
reakev
en
WTI Breakeven
Remaining Locations
Source: Wood Mackenzie
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1,400
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1,800
2016 2017 2018 2019
Rig
s
Pro
du
cti
on
(m
bo
e/d
)
2016 production outlook 2017 production outlook
2016 rigs 2017 rigs
Source: Wood Mackenzie
Permian sustainability and SCOOP/STACK competition woodmac.com 6
Mississippian variability: targets across play
System Series Formation
Mississippian
Chesterian Chester
Meramecian Mississippi
Lime Osagean
System Series Formation
Mississippian
Chesterian Chester
Meramecian
Meramec Silt
Meramec
Lime
Osage Osagean
System Series Formation
Mississippian
Chesterian
Springer
Chester
Meramecian Meramec
Silt
Osagean
System Series Formation
Mississippian
Chesterian Chester
Meramecian Sycamore
Osagean Mayes
System Series Formation
Mississippian
Chesterian Springer
Chester
Meramecian Sycamore
Mayes Osagean
System Series Formation
Mississippian
Chesterian Chester
Meramecian
Meramec Silt
Meramec
Lime
Osage Osagean
North (Mississippi Lime play) ^
Permian sustainability and SCOOP/STACK competition
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New STACK acreage that
we now model economic
under US$50/bbl WTI
1.5 million
acres
Permian sustainability and SCOOP/STACK competition
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The Permian Wolfcamp and Bone Spring account for over half of the total economic Lower 48 resource below $50/bbl (WTI)
Resource potential more than triples from $40/bbl to $60/bbl.
Permian sustainability and SCOOP/STACK competition
Source: Wood Mackenzie, NAWAT
Lower 48 tight oil cost curve by play
$0
$20
$40
$60
$80
$100
$120
$140
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95%
WT
I b
reakev
en
(U
S$/b
bl)
Percentage of cumulative undrilled liquids resource
Wolfcamp Bone Spring Eagle Ford Bakken Mid-Continent Niobrara Other Hz
While all tight oil plays have assets generating
returns in a sub-$50/bbl environment, none offer
the same scale as the Wolfcamp and Bone
Spring in the Permian.
A more widespread return to drilling is likely
to occur in a $55-$60/bbl range as larger
portions of the Bakken, Eagle Ford and
Niobrara are in the money
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US Lower 48 crude oil supply reaches a broad plateau of 11.5 million b/d by 2026
Although the peak has been lowered by about 300 kb/d compared with H1 2017 forecast, we still see strong growth, driven by the Permian
Permian sustainability and SCOOP/STACK competition
Source: Wood Mackenzie
US Lower 48 crude and condensate production
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Cru
de o
il a
nd
fie
ld c
on
den
sate
pro
du
cti
on
(m
illio
n b
/d)
Other Eagle Ford Bakken
Niobrara SCOOP-STACK-Cana Permian (incl. Conventional)
Reserves Growth H1 2017
Competition creates opportunity: virtually every mega shale play hit unexpected headwinds a few years in
Operators are setting up to develop the Permian harder than any shale play before
Bakken – Basis blowouts
and midstream logistics Marcellus – Regulatory delays and
complex operational environments
Haynesville – Global economic
slowdown and gas price collapse
Permian – Could underappreciated
geological and reservoir
constraints be too big to ignore?
Eagle Ford – Smaller sweet
spots than originally thought
Permian sustainability and SCOOP/STACK competition woodmac.com 11
Source: Wood Mackenzie
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0
1,000
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Wells D
rilled
Eagle Ford Permian
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1,000
2,000
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2010 2011 2012 2013 2014 2015 2016
Av
era
ge S
tag
e C
ou
nt
Av
era
ge L
ate
ral
Len
gth
(ft
)
Eagle Ford Stage Count
Wolfcamp Stage Count
Eagle Ford Lateral Length
Wolfcamp Lateral Length
Permian drilling set to exceed Eagle Ford boom
Permian: unchartered territory for stimulating a single play
More wells, longer laterals, more stages in a basin with known vertical communication
Permian sustainability and SCOOP/STACK competition
Source: Wood Mackenzie North American Company Play Analysis Tool, North American Well Analysis Tool
Permian wells have more aggressive completions
But when we study history….. Wolfcamp EUR gains are explosive
Well gains are remarkable, but sometimes that can be misleading
0
500
1,000
1,500
2,000
2,500
0.0
0.1
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0.3
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200
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An
nu
al
We
lls
Dri
lle
d
Oil
EU
R (
mm
bb
l)
Vertical Horizontal Wells Drilled
Rate of change in EUR gains for horizontal wells accelerated massively
New well count falls, but EURs rise.
Source: Wood Mackenzie’s North American Well Analysis Tool (NAWAT)
Permian sustainability and SCOOP/STACK competition woodmac.com 13
0.000
0.010
0.020
0.030
0.040
0.050
2010 2012 2014 2016
Ea
gle
Fo
rd W
ell
Oil
EU
R
EUR Oil per Lateral Length (mmbbl perthousand ft)
EUR Oil per Fracture Stages (mmbblper stage)
Why can’t EURs go to 3 mmboe?
• The impact of “next wave”
technology enhancements like
low temperature diverters, smaller
proppant sizes, and better lift
systems are yet to be fully seen in
production data.
• Fundamental changes in
completion design work to create
greater reservoir drainage and
fracture complexity.
• The Wolfcamp is very early in its
development still, so the “learning
curve” runway is particularly long.
I already drilled my best wells.
• Better reservoir modelling
meant that 2015-17 acreage
highgrading was actually well
highgrading.
• Tighter and tighter well
spacing means that emerging
issues like “child” well
performance and frac hits will
limit the ultimate size of
commercial well inventories.
• Outsized production gains
were actually from better
lateral placement in the target
zone, rather than better
downhole completions.
This acts as a virtual tug-of-war between the technology and Permian geology debate
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2021 peak in the reservoir downside case Technology upside case adds 500 kb/d
How could these issues impact Permian tight oil growth?
The gap between the bull and bear case is over 1 million b/d.
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Pe
rmia
n t
igh
t o
il p
rod
uct
ion
('0
00
b/d
)
July 2017 type curves Technology upside
Upside starts to develop in 2019 as drilling accelerates with higher IP rates. Late-life performance improvements in older wells begin to build too.
More aggressive declines limit the continuation of some of the nearer-term gains.
The peak delta is over 500 kb/d of upside production, utilising the same rig deployment.
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rmia
n t
igh
t o
il p
rod
uct
ion
('0
00
b/d
) July 2017 type curves Technology upside
Reservoir downside
Downside risks may not be apparent for a few years.
In 2021, the downside case drops below the reference case as child well drilling becomes commonplace.
Higher terminal decline rates and frac hits give the downside case a more aggressive drop off as well.
Source: Wood Mackenzie Contour
Permian sustainability and SCOOP/STACK competition woodmac.com 15
Key takeaways
US tight oil is extremely
competitive and the resource
base is massive...and growing.
The Permian dominates today,
but it will face some new
challenges the next five years.
Mid-con STACK assets in
particular are showing massive
improvements in breakevens.
2021 could mark an inflection
point in the US cost stack with
companies undertaking inter-
basin portfolio repositioning.
Permian sustainability and SCOOP/STACK competition
woodmac.com 17
Robert Clarke
Research Director – Lower 48 Upstream
Biography Connect with Robert
Robert Clarke has been with Wood Mackenzie since 2005, originally as a member of
the company’s initial US Lower 48 Upstream Research group in Houston. He has
covered numerous US regions and led much of Wood Mackenzie’s early shale
research.
He managed the company’s international shale, CBM, and tight gas research from 2009 to
2014 and has widespread experience benchmarking and valuing exploratory global
unconventional assets. Internally, he oversees an upstream Knowledge Network for other
analysts. He relocated to Dallas in 2015 and works closely with E&Ps, investors, and
service companies specific to the North Texas market.
Robert specialises in geologic play description, portfolio valuation, production forecasting,
analogue modelling, and sector trend analysis. He has worked on upstream consulting
projects, ranging from asset opportunity screenings for E&Ps, to due diligence work for
private equity-led M&A. Robert regularly contributes to written media and is a frequent
speaker and panel moderator at industry conferences.
Prior to joining Wood Mackenzie, he worked as a Field Geologist for a private engineering
and consulting firm in Houston, Texas. Robert graduated Cum Laude from Texas A&M
University in 2001 with a BA in Geology, and received a MBA in 2005 from the Eller College
of Management at the University of Arizona.
+1 214 513 9222
@RobertClarke_WM
woodmac.com 18
Disclaimer
Strictly Private & Confidential
This report has been prepared by Wood Mackenzie Limited, to be presented at the
Center for Strategic & International Studies workshop discussion on The Outlook for Oil
and Gas Production in the Permian and SCOOP/STACK Shale Plays on November 29,
2017. The report is intended solely for the benefit of attendees and its contents and
conclusions are confidential and may not be disclosed to any other persons or
companies without Wood Mackenzie’s prior written permission.
The information upon which this report is based has either been supplied to us or comes
from our own experience, knowledge and databases. The opinions expressed in this
report are those of Wood Mackenzie. They have been arrived at following careful
consideration and enquiry but we do not guarantee their fairness, completeness or
accuracy. The opinions, as of this date, are subject to change. We do not accept any
liability for your reliance upon them.
woodmac.com 19
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