Post on 16-Aug-2020
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Rockin’ the RockiesT R I S H A C U R T I S
P E T R O N E R D S , P R E S I D E N T A N D C O - F O U N D E R
T R I S H A @ P E T R O N E R D S . C O M
D U G D E N V E R
M AY 1 5 , 2 0 1 9
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What is a PetroNerd?
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© PETRONERDS LLC | WWW.PETRONERDS.COM | 970-329-1645 3
About PetroNerds and Our Services• Boutique energy analytics and advisory firm based in
Denver, CO
• Personalized, data-driven advisory services
• Help our clients understand how the oil market impacts
their business
• Provide data and actionable insights needed, not reports
and projections that are never read
• HedgeAware – Interactive, cloud-based solution for
quickly assessing the hedging strategies and past
performance of U.S. oil and gas producers on a single,
easy to use platform
Forthcoming Report on Productivity
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http://www.petronerds.com/wp-content/uploads/2017/11/OIES-PetroNerds-Completion-Design-and-Productivity-2017.pdf
“Completion Design Changes and the Impact of US Shale Well Productivity”
Oil Market
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Oil Prices
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Supply, Supply, Supply
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Source: EIA
Saudi 9.8 mbd (from 11.1 plus mbd) Russia 11.5 mbd (from 11.7 mbd) US 11.9 mbd
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
Jan
-06
No
v-0
6
Sep
-07
Jul-
08
May
-09
Mar
-10
Jan
-11
No
v-1
1
Sep
-12
Jul-
13
May
-14
Mar
-15
Jan
-16
No
v-1
6
Sep
-17
Jul-
18
Tho
usa
nd
Bar
rels
Per
Day
U.S. Field Production of Crude Oil
IEA Q4 2018 Oil Supply and Demand
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$-
$10
$20
$30
$40
$50
$60
$70
$80
$90
1/2/2015 1/2/2016 1/2/2017 1/2/2018
$ P
er B
arre
l
Europe Brent Spot Price FOB $/bbl Cushing OK WTI Spot Price FOB $/bbl
Source: EIA
Shale Model Inspiring Broader Changes
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• Short-term, low cost, growth oriented
• Knowledge, Determination, Brute Force
• Nimble Service Sector
• Efficiency Gains
• Rapidly changing and evolving to increased understanding of the rocks
US Independents
• Investing in US Shale
• Exxon, Chevron, ConocoPhillips
• BP and other interested in moves by the majors in US shale – BP opening Denver office and purchased BHP’s shale assets.
• US shale now viewed as a positive, and necessary, diverse asset to any portfolio
Majors• Lessons learned from shale
• Shale’s short cycle, low cost, quick return nature is driving global projects to compete for cash – “break-even” has spread far beyond shale
• Operators are now comparing their global assets against US shale
• Operators now invest differently – Near term growth with less risk
Global Shifts
Source: PetroNerds
But Some Still Focused on Investment Shortfalls
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Shale Market Dynamics
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Generalist Investor has Left the Oil Sector -
Activists
Opportunity for Consolidation - What about PE and Small
Players?
Investor Pressure -Shareholder
Returns/Positive Free Cash Flow
BIG Shale Demand –Majors Pushing Permian
and Short Cycle
Bifurcation between Large Caps and Small/Mid Caps
Well Spacing/Inventory –
ROR vs. NPV
Depend on Size and Market Cap
PDC
EOG vs. PXD
It is about size – so roll up the small players
Share price pressure positive from M&A standpoint
Energy’s Weighting in the S&P 500 is Now Just 5 Percent
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Information Technology
20%
Health Care16%
Financials14%
Consumer Discretionary
10%
Communications Services
10%
Industrials9%
Consumer Staples
7%
Energy5%
Utilities3%
Real Estate3%
Materials 3%
Source: Bloomberg, September 21, 2018
Source: The Balance, November 2018
Considering Market Pressure When Analyzing the Rockies
Rockies
Lots of Small and Mid Cap PlayersStrong Production Base, but Pipeline
Constraints, Regulatory Risk, and Unproven
S&P 500 Shrinkage – Loss of Generalist Investor
Permian Focus – Attention Challenge For the Rockies
Small and Mid Cap Pressure
Market Pressure
Muted Oil Prices Investor Pressure – Returns
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Weight on the Rockies
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S&P 500
CVXWTI FANG
EOGPXD
WLL
XOG
Evolution of Investor PressurePre 2014 – Need More than the Bakken, Double Down in the Bakken, Find a New Bakken
2014 Oil Price Correction – Pump and Produce, Lots of Sand and Lots of Water, High IPs, Give me Cash Flow
2015 to 2016 – PERMANIA, Prices are Sub $60 but Buy Anything and Everything, Dry Powder, No Production, at Any Cost!
- strict drilling and leasing requirements
2017 – Start Focusing on Cash Flow!
2018 – Investor pressure on returns continues to build, oil prices move up, but stock prices are muted, get free cash flow positive or at the very least free cash flow neutral
-want inventory and scale, but we might penalize if you do this
2019 – Oil went to $44 on Christmas eve! Show me that free cash flow, production growth, inventory, mergers, dividends, share buybacks, and all money returned shareholders above $50
-Favoring majors and short cycle
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Weighing the Rockies
Positives Negatives
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Last Quarter – Even EOG….
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EOG – WTI and S&P
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EOG CAPEX, Free Cash Flow, and Production
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Source: HedgeAware, PetroNerds
EOG Completed Well Costs
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2012 2013 2014 2015 2016 2017 Q3 2018 2018 YearEnd Target
2018 YearEnd
2019 YearEnd Target
$15.4
$9.8
$8.5 $7.7 $7.5 $7.4 $7.5 $7.2 $7.2
$6 $6.1 $5.7 $4.7 $4.5 $4.4 $4.3 $4.6 $4.3
$9.8 $10 $8.8
$7.2
$5.1 $4.8 $4.6 $4.6
$ M
illio
ns
Delware Basin Wolfcamp (normalized to 7,000 ft lateral) Eagle Ford (normalized to 5,300 ft lateral) Bakken (normalized to 8,400 ft lateral)
Source: PetroNerds, EOG Investor Presentations
Chevron and Exxon – Permian Growth Forecasts – Favoring Short Cycle
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Source: Chevron Investor Day Presentation, March 5, 2019 Source: ExxonMobil Investor Day Presentation, March 6, 2019
Exxon and Chevron both favoring short-cycle, stable growth. Both expect to grow their Permian Basin production to nearly 1 million boed each by 2024.
Occidental and Anadarko
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Anadarko Spending $1.3 Billion in the DJ in 2019
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Source: Bank of America 2018 Global Energy Conference, November 15, 2018
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Are well spacing issues really going to kill the boom?
High Proppant Volumes
High Fluid Volumes
And Tight Spacing
Recipe for Poor Well
Performance?
Changes in Inventory –Changes in Spacing – EVOLVING
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Source: Laredo, May Q1 2019 Earnings Source: Parsley Energy, May 2019, Q1 2019 Earnings
Chesapeake’s Tweaks on Spacing/Completions
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EOG vs. PXD on Well Spacing
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Schlumberger Has Concerns, Again….the well-established market consensus that the Permian can continue to provide 1.5 million barrels per day of annual production growth for the foreseeable future is starting to be called into question. ….we believe the main challenge in the Permian going forward is more likely to be reservoir and well performance as the rate of infield drilling continues to accelerate.
At present, our industry has yet to understand how reservoir conditions and well productivity change as we continue to pump billions of gallons of water and billions of pounds of sand into the ground each year.
In the Permian, the percentage of child wells in the Midland Wolfcamp basin has just reached 50% and we are already starting to see a similar reduction in unit well productivity to that already seen in the Eagle Ford suggesting that the Permian growth potential could be lower than earlier expected.
Schlumberger Q3 2018 Earnings Call, Paal Kibsgaard
Chase Mulvehill
….you talked about U.S. shale production and the challenges around that that you are starting to see. These challenges – is this something that can be solved through technology or is this just reservoir challenges that we have to deal with?
Paal Kibsgaard
No. I think it can absolutely be solved through technology….it requires a bit more of a reservoir focus on how the wells are drilled, how the wells are fracked, and we need a little bit more data to make sure that we do the right things here. But the measurements are available, the analysis and interpretation of the measurements are available and the remedies that we need to do to the frac fluids are also available. It’s just a matter of adopting these technologies. We have them all ready to go.
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Measuring Performance on Proppant Volumes Pumped….?
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Source: Schlumberger Investor Presentation, September 2018
Completion Design Modifications Continue
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Source: PetroNerdsPre 2014 2018
Production andProductivity
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Shale Play Type Curves
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100
200
300
400
500
600
700
1 3 5 7 9 11131517192123252729313335373941434547
BA
RR
ELS
PER
DA
Y
MONTHS
Type Curve
2014 Type Curve 2015 Type Curve 2016 Type Curve
2017 Type Curve 2018 Type Curve 2019 Type Curve
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46
BA
RR
ELS
MONTHS
Cumulative Barrels
2014 Cum Barrels 2015 Cum Barrels 2016 Cum Barrels
2017 Cum Barrels 2018 Cum Barrels 2019 Cum Barrels
Oil Price Assumption
Cumulative Production at 12 Months = 134,000 barrels x $/Barrel
Cumulative Production at 24 Months = 170,000 x $/Barrel
$40 $5,353,745 $6,793,608 $50 $6,692,181 $8,492,009
$60 $8,030,617 $10,190,411
$65 $8,699,836 $11,039,612 $70 $9,369,054 $11,888,813 $75 $10,038,272 $12,738,014
Permian, DJ, Williston, Powder, and Texas and Louisiana Gulf Coast Basins
Is Productivity Improving When Normalized for Lateral Length? In Most Cases, Yes.
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Source: PetroNerds, DrillingInfo. Data points are quarterly averages.
Infrastructure constraints, pent up productivity
US Shale Oil Play Production by Basin
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-
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
1/1
/20
00
1/1
/20
01
1/1
/20
02
1/1
/20
03
1/1
/20
04
1/1
/20
05
1/1
/20
06
1/1
/20
07
1/1
/20
08
1/1
/20
09
1/1
/20
10
1/1
/20
11
1/1
/20
12
1/1
/20
13
1/1
/20
14
1/1
/20
15
1/1
/20
16
1/1
/20
17
1/1
/20
18
1/1
/20
19
Bar
rels
Per
Day
Shale Play Production
Permian Denver Julesburg Powder River
Williston Anadarko Eagle Ford Reservoir
-
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
4,500,0001
/1/2
00
0
1/1
/20
01
1/1
/20
02
1/1
/20
03
1/1
/20
04
1/1
/20
05
1/1
/20
06
1/1
/20
07
1/1
/20
08
1/1
/20
09
1/1
/20
10
1/1
/20
11
1/1
/20
12
1/1
/20
13
1/1
/20
14
1/1
/20
15
1/1
/20
16
1/1
/20
17
1/1
/20
18
1/1
/20
19
Bar
rels
Per
Day
Shale Play Production
Permian Denver Julesburg Powder River
Williston Anadarko Eagle Ford Reservoir
Permian – 3.9 mbdWilliston – 1.4 mbdEagle Ford – 1.2 mbdDJ – 516,000 bdAnadarko – 380,000 bdPowder – 142,000 bd
Source: PetroNerds, DrillingInfo
Williston – Continued Growth
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Powder – Turner Focus, Future Niobrara
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$270 to $300 Million CAPEX
40 Net Completions (double that of Bakken)
$505 to $525Million CAPEX
Source: Devon, Chesapeake, EOG, Q1 2019 Earnings
DJ Basin – “Well Positioned”
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Source: Extraction, Q1 2019 Earnings
1. Q1 call – understand regulatory environment2. Low, repeatable well cost
Williston Basin Type Curve
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-
100
200
300
400
500
600
700
800
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48
BA
RR
ELS
PER
DA
Y
MONTHS
2014 2015 2016 2017 2018 2019
Williston Basin Productivity
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Source: PetroNerds, DrillingInfo
DJ Basin Type Curve
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-
50
100
150
200
250
300
350
400
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48
BA
RR
ELS
PER
DA
Y
MONTHS
2014 2015 2016 2017 2018 2019
DJ Basin Productivity
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Source: PetroNerds, DrillingInfo
Permian Basin Well Productivity
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Source: PetroNerds, DrillingInfo
-
100
200
300
400
500
600
700
800
900
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48
BA
RR
ELS
PER
DA
Y
MONTHS
2014 2015 2016 2017 2018 2019
Permian Basin Productivity
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Source: PetroNerds, DrillingInfo