This model contains our live, basin-by-basin shale forecasts. It covers the Permian, Bakken and Eagle Ford, as a function of the rig count, drilling productivity, completion rates, well productivity and type curves. Thus, we derive production and financial expectations.
For 2022, the key challenge is stepping up activity levels, as the rig count must rise +60% YoY to keep early-2020s oil markets sufficiently supplied. Conversely, in 2021, production surpassed our expectations due to an unprecedented rate of DUC drawdowns, while well productivity was also stronger-than-feared.
Our longer-term numbers hinge on the productivity gainsdescribed in our thematic research. Shale productivity trebled from 2012-2018. We think it can rise another 45% by 2025, unlocking 15Mbpd of liquid shale production. However productivity could disappoint mildly in 2022 as the industry ramps activity levels back post-COVID.
We have also modeled the Marcellus shale gas play, using the same framework, in a further tab of the data-file. Amazingly, there is potential to underpin a 100-200MTpa US LNG expansion here, with 20-50 additional rigs.
Unprecedented high-grading is now occurring in the US shale industry, amidst challenging industry conditions. This means 2020-21 production surprising to the upside, and we raise our forecasts +0.7 and +0.9Mbpd respectively. Conversely, when shale activity recovers, productivity could disappoint, and we lower our 2022+ forecasts by 0.2-0.9 Mbpd. This 7-page note explores the causes and consequences of this whipsaw effect.
Our oil price outlook is informed by a 45-line supply-demand model, running month-by-month out to 2025. This download contains both the model, and a 4-page summary of our outlook.
Devastating under-suppliesof oil look less likely on our latest numbers. The market is more balanced than any time we have assessed it in the recent past. Out to 2025, $60-70/bbl oil should also suffice to balance oil markets, while higher prices could draw in 3Mbpd more shale and 1Mbpd more Saudi oil, plus a buffer of 400Mbbls undrawn excess inventories from the COVID crisis.
After ten years forecasting oil markets, our humble conclusion is that all oil models are wrong. Some are nevertheless useful. To be most useful, our model takes a Monte Carlo approach to the key uncertainties, to quantify the “risk” of positive and negative surprises (illustrative example below).
Please download the modelto see, and to flex our input assumptions in 2Q21. Included with the download is a PDF summary of our latest oil price thesis, which is also available separately, linked here.
SuperMajors’ shale developments are assumed to differ from E&Ps’ mainly in their scale and access to capital. Access to superior technologies is rarely discussed. But new evidence is emerging. This note assesses 40 of Chevron’s shale patents from 2019, showing a vast array of data-driven technologies, to optimize every aspect of shale.
CO2 and methane intensities are tabulated for 300 distinct company positions across 9 distinct basins in this data-file. Using the data, we can aggregate the total CO2 in (kg/boe) and methane leakage rates (as a percent of natural gas production) across the US’s different basins.
Covered basins include the Permian, Bakken, Eagle Ford, Marcellus/Utica, Alaska, GoM, Powder River, San Juan, Anadarko basin and DJ basin (chart above).
It is possible to rank the best companies in each basin, using the granular data, to identify industry leaders and laggards (chart below).
This data-file calculates the CO2 intensity of oilfield supply chains, across ten different resources, as materials are transported to drilling rigs, frac crews, production platforms and well pads.
Different resources can be ranked on this measure of supply chain CO2-intensity: such as the Permian, the Gulf of Mexico, offshore Norway, Guyana, pre-salt Brazil and Middle East onshore production (chart above).
Underlying the calculations are modeling assumptions, for both onshore and offshore operations, each based on c15 input variables. You can change the inputs to run your own scenarios, or test the most effective ways to lower supply-chain CO2.
This data-file tabulates Permian CO2 intensity based on regulatory disclosures from 20 of the leading producers to the EPA in 2018. Hence we can calculate the basin’s upstream emissions, in tons and in kg/boe.
The data are fully disaggregatedby company, across the 20 largest Permian E&Ps, Majors and independents; and across 18 different categories, such as combustion, flaring, venting, pneumatics, storage tanks and methane leaks.
A positiveis that CO2 intensity is -52% correlated with operator production volumes, which suggests CO2 intensity can be reduced over time, as the industry grows and consolidates into the hands of larger companies.
We have reviewed 40 of Shell’s GTL patent filings for 2018. They show continued progress, innovating new fuels, lubricants, renewable-heavy gasolines, waxes and detergents. Each patent is summarised and categorized in this data-file.
All of this begs the question whether there is a commercial rationale for a US replica of the Pearl GTL project, to handle the over-abundance of gas emanating from the Permian; and produce these advantaged products. It would also help reduce the risk of US LNG projects glutting the market.
We therefore model the economicsin this data-file, using prior project disclosures and our learnings from the patent history. Our base case IRR is 11%, taking in 1.6bcfd of shale gas as feedstock. Resiliency is tested at varying oil and gas prices.
The database evaluates 950 technical papers that have been presented at shale industry conferences from 2018-2020. We have summarised each paper, categorized it by topic, by author, by basin, ‘how digital’ and ‘how economically impactful’ it is.
The aim is to provide an overview of shale R&D, including the cutting edge to improve future resource productivity. We estimate 2020 was the most productivity-enhancing set of technical papers of any year in the database.
Recent areas of innovationinclude completion design, fracturing fluids, EORand machine learning. We also break down the technical papers, company-by-company, to see which operators and service firms have an edge (chart below).
We have modelled the economics of CO2-EOR in shale, after interest in this topic spiked 2.3x YoY in the 2019 technical literature. Our deep-dive research into the topic is linked here.
The economics appear positive, with a 15% IRR under our base case assumptions, and very plausible upside to 25-30%.
There is potential to sequester 3.5bn tons of CO2 in shale formations in the US, plus another 40bn tons internationally, for a CO2 disposal fee of c$40/ton, which we have quantified based on the technical literature.
The model also allows you to stress-test your own assumptions such as: oil prices, gas prices, CO2 prices, CO2 tax-credits, compressor costs and productivity uplift. The impacts on IRR, NPV and FCF are visible.
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