Permian sustainability and SCOOP/STACK competition · 2020. 4. 17. · woodmac.com 2 The pre-FID cost curve in 2025: Permian and Eagle Ford dominate Other themes are competitive,

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

http://www.woodmac.com/

woodmac.com 2

The pre-FID cost curve in 2025: Permian and Eagle Ford dominate

Other themes are competitive, but focus is needed on project execution


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?


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


$35.08

$31.94

$49.34

$0

$10

$20

$30

$40

$50

$60

WT

I b

reakev

en

at

10%

IR

R (

$/b

bl)


woodmac.com 5

Largest YoY

Reduction



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

0

1000

2000

3000

4000

5000

6000

$-

$10

$20

$30

$40

$50

$60

$70

$80

$90

Merg

e

NW

ST

AC

K M

iss

ST

AC

K O

il M

iss

NE

ST

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


0

20

40

60

80

100

120

0

200

400

600

800

1,000

1,200

1,400

1,600

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




Mississippian variability: targets across play

System Series Formation

Mississippian

Chesterian Chester

Meramecian Mississippi

Lime Osagean


Mississippian

Chesterian Chester

Meramecian

Meramec Silt

Meramec

Lime

Osage Osagean


Mississippian

Chesterian

Springer

Chester

Meramecian Meramec

Silt

Osagean


Mississippian

Chesterian Chester

Meramecian Sycamore

Osagean Mayes


Mississippian

Chesterian Springer

Chester

Meramecian Sycamore

Mayes Osagean


Mississippian

Chesterian Chester

Meramecian

Meramec Silt

Meramec

Lime

Osage Osagean

North (Mississippi Lime play) ^


woodmac.com 7



New STACK acreage that

we now model economic

under US$50/bbl WTI

1.5 million

acres


woodmac.com 9

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.


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



woodmac.com 10

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



US Lower 48 crude and condensate production

0

2

4

6

8

10

12

14

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




woodmac.com 12

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

20

22

20

23

20

24

20

25

Wells D

rilled

Eagle Ford Permian

0

5

10

15

20

25

30

35

40

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

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


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

0.2

0.3

0.4

0.5

200

1

200

3

200

5

200

7

200

9

201

1

201

3

201

5

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)


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

woodmac.com 14


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.

0

1,000

2,000

3,000

4,000

5,000

6,000

20

17

20

18

20

19

20

20

20

21

20

22

20

23

20

24

20

25

20

26

20

27

20

28

20

29

20

30

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.

0

1,000

2,000

3,000

4,000

5,000

6,000

20

17

20

18

20

19

20

20

20

21

20

22

20

23

20

24

20

25

20

26

20

27

20

28

20

29

20

30

Pe

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



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.


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

[email protected]

@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

Wood Mackenzie™, a Verisk Analytics business, is a trusted source of commercial intelligence for the world's

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Documents

Permian sustainability and SCOOP/STACK competition · 2020. 4. 17. · woodmac.com 2 The pre-FID cost curve in 2025: Permian and Eagle Ford dominate Other themes are competitive,