Future US shale productivity can still rise at a 5% CAGR to 2025, based on evaluating 300 technical papers from 2020. The latest improvements are discussed in this 12-page note, and may spark more productivity gains than any prior year. Thus unconventionals could grow by 2.6Mbpd per annum from 2022-25 to quench deeply under-supplied oil markets. But hurdles remain. The leading technologies are also becoming concentrated in the hands of fewer operators and an emerging group of oil services.
Our production forecasts for US shale are outlined on pages 2-3. Volumes must double by 2025 to rebalance future oil markets, which hinges on productivity gains.
Our outlook for shale productivity is explained on page 4, including our methodology, which considers the pace of progress in technical papers.
Headline comparisons are presented on pages 5-6, between the technical papers filed around the shale industry in 2018, 2019 and 2020.
The latest improvements are summarized across each category, drawing on the most interesting technical papers and the companies that have filed them. This includes petrophysics (page 7), completion designs (page 8), optimizing completion fluids (page 8), Shale-EOR (page 9) and a step-change in machine learning algorithms (page 10-11).
The leading companies are highlighted on page 12, ranked according to the numbers of technical papers they have filed in each year. Some are stepping up, and gaining an edge, while others are clearly pulling back on shale R&D.
It is no longer possible to compete in the US shale industry without leading digital technologies. This 10-page note outlines best practices, process by process, based on 500 patents and 650 technical papers. Chevron, Conoco and ExxonMobil lead our screens. We profile where they have an edge, to capture upside in the industry’s dislocation and recovery. Disconcertingly absent from the leader-board is EOG, whose long-revered technical edge may now have been eclipsed by others.
There is now a potential 100MTpa shortfall in 2024-26 LNG supplies: deeply negative for energy transition, but positive for LNG incumbents. The last oil industry crisis, in 2014-16, slowed down LNG project progress, setting the stage for 20-60MTpa of under-supply in 2021-23. The current COVID-crisis could cause a further 15-45MTpa of supply-disruptions, after looking line-by-line through our database of 120 projects, described in this 6-page note.
SuperMajors’ shale developments are assumed to differ from E&Ps’ mainly in their scale and access to capital. Superior technologies are rarely discussed. But new evidence is emerging. This 11-page note assesses 40 of Chevron’s shale patents from 2019, showing a vast array of data-driven technologies, to optimize every aspect of unconventionals.
Page 2 explains how we assessed Chevron’s shale patents, to identify technologies that could support guidance for 900kboed of Permian production by 2023.
Page 3 sets out Chevron’s technologies for shale exploration and appraisal, based on recent seismic patents.
Page 4 sets out Chevron’s technologies for shale drilling, based on recent patents, many of which are co-filed with Halliburton, around a specific innovation.
Pages 5-8 set out Chevron’s technologies for shale completions, through an array of sophisticated, proprietary and increasingly digital technologies. These will not only help in the Permian, but also in de-risking international basins.
Page 8 sets out Chevron’s potential edge in completion fluids. We are particularly excited by the promising results from field-tests of anionic surfactants.
Page 9 sets out Chevron’s data-driven flowback practices, including productivity gains from field tests in the Vaca Muerta.
Pages 10-11 set out Chevron’s technologies for upgrading NGLs into gasoline-, jet- and diesel-range products, using industry-leading ionic liquid catalysts.
Page 11 concludes with implications for the broader shale industry.
Shale growth has been slowing due to fears over the energy transition, as Permian upstream CO2 emissions reached a new high in 2019. We have disaggregated the CO2 across 14 causes. It could be eliminated by improved technologies and operations, making Permian production carbon neutral: uplifting NPVs by c$4-7/boe, re-attracting a vast wave of capital and growth. This 26-page note identifies the best opportunities.
Pages 2-5 show how fears over the energy transition have slowed down shale growth in 2019.
Pages 6-10 disaggregate the CO2 intensity of the Permian, by source and by operator, based on over a dozen models we have constructed.
Pages 11-15 argue why increased LNG development is the single greatest operational opportunity to reduce Permian CO2 intensity.
Pages 16-18 summarise advances in methane mitigation technologies and their impacts.
Pages 19-23 outline and quantify the best opportunities to lower CO2 from digital initiatives, renewables, lifting and logistics.
Pages 24-25 quantifies the sequestration potential from CO2-EOR, which could offset the remaining CO2 left after all the other initiatives above.
Our conclusion is to identify three top initiatives that companies and investors should favor. Industry leading companies are also suggested based on the patents and technical literature we have reviewed.
Refining has the highest carbon footprint in global energy. Next-generation catalysts are the best opportunity for improvement: uniquely, they could cut refineries’ CO2 by 15-30%, while also uplifting margins, which get obliterated by other decarbonisation approaches. Catalyst science is undergoing a digitally driven transformation. Hence this 25-page note outlines a new ESG opportunity around refining catalyst technologies. Industry leaders are also identified.
Pages 2-3 outline the need to decarbonise the refining industry, in order to clean up the world’s future oil production and preserve access to capital.
Pages 4-6 decompose the sources of CO2 emissions across a typical refinery, process-by-process; as a function of heat, utilities and hydrogen.
Page 7-8 outline small opportunities to improve refinery CO2 intensities, via continued process enhancements, changing crude slates and renewable energy.
Page 9 finds green hydrogen can reduce CO2 emissions by c7-15%, but economics are unfavorable, obliterating refining margins.
Pages 10-12 models the costs of post-combustion carbon capture, which could cut CO2 intensities by 25-90%, but also risks cutting margins by $2-4/bbl.
Pages 13-14 present the opportunity for better catalysts, identifying which Energy Majors have the leading refining technologies, based on patent filings.
Pages 15-17 outline the most promising, emerging catalyst technologies from 50 patents we studied. They can reduce refinery CO2 intensities by 5kg/bbl.
Pages 18-21 highlight breakthrough, digital technologies to improve the development of new catalysts, including super-computing and machine learning techniques.
Pages 23-24 screen 35 leading catalyst companies, including Super-Majors, chemicals companies and earlier-stage pure-plays.
Technology leadership is crucial in energy. It drives costs, returns and future resiliency. Hence, we have reviewed 3,000 recent patent filings, across the 25 largest energy companies, in order to quantify our “Top Ten” patent leaders in energy.
This 34-page note ranks the industry’s “Top 10 technology-leaders”: in upstream, offshore, deep-water, shale, LNG, gas-marketing, downstream, chemicals, digital and renewables.
For each topic, we profile the leading company, its edge and the proximity of the competition.
Companies covered by the analysis include Aramco, BP, Chevron, Conoco, Devon, Eni, EOG, Equinor, ExxonMobil, Occidental, Petrobras, Repsol, Shell, Suncor and TOTAL.
Upstream technology leaders have been discussed in greater depth in our April-2020 update, linked here.
More information? Please do not hesitate to contact us, if you would like more information about accessing this document, or taking out a TSE subscription.
2019 has evoked resource fears in the shale industry. They are unfounded. Even as headline productivity weakened, underlying productivity continues improving at an exciting pace. These conclusions are substantiated by reviewing 350 technical papers, published by the shale industry in summer-2019. Major improvements are gathering momentum, in shale-EOR, machine learning techniques, digitalization and frac fluid chemistry.
Technology drives 30-60% of energy companies’ return on capital. This is our conclusion after correlating 10 energy companies’ ROACEs against 3,000 patent filings. Above average technologies are necessary to generate above-average returns.
For the first time, we have been able to test the relationship between oil companies’ technical abilities and their Returns on Average Capital Employed (ROACE).
In the past, technical capabilities have been difficult to quantify, hence this crucial dimension has been overlooked by economic analysis in the energy sector.
Our new methodology stems from our database of 3,043 patents, filed by the Top 25 leading energy companies in 2018. The data cover upstream, downstream, chemicals and new energy technologies (chart below) . All the patents are further summarised, “scored” and classed across 40 sub-categories.
The methodology is to correlate our patent-scores for each company with the ROACE generated by the company in 2018. We ran these correlations at both the corporate level and the segment level…
Results: patent filings predict returns
Patent filings predict corporate returns. In 2018, the average of the Top 10 Integrated Oil Majors generated a Return on Average Capital Employed (ROACE) of 11%, based on our adjusted, apples-to-apples calculation methodology. These returns are 54% correlated with the number of patents filed by each Major (chart below).
Technology leaders are implied to earn c5% higher corporate returns than those deploying industry-average technologies, which is a factor of 2x.
Upstream patent filings also predict upstream returns, with an 85% correlation coefficient. The data are skewed by one Middle East NOC, which earns exceptionally high returns on capital, but even excluding this datapoint, the correlation coefficient is 65% (chart below).
The curve is relatively flat, with the exception of two outliers, implying that it is hardest to improve general upstream returns using technology. This may be because upstream portfolios are vast, spanning many different asset-types and geographies.
Downstream patent filings predict downstream returns, with an 80% correlation coefficient (chart below). However, our sample size is smaller, as we were unable to dis-aggregate downstream ROACE for all the Majors.
The curve is very steep, indicating that downstream technology leaders can surpass c20% returns on capital, versus c10% using industry-standard technologies.
Chemical patent filings predict chemical returns, with a 57% correlation coefficient (chart below). Again, our sample size is smaller, as we could only estimate chemicals ROACEs for some of the Majors.
The curve is also steep, with technology leaders earning c10-20% returns, versus low single digit returns for less differentiated players.
Overall, the results should matter for investors in the energy sector, for capital allocation within corporates, and for weighing up the benefits of in-house R&D. We would be delighted to discuss the underlying data with you in more detail.
We have all heard the criticism that shale oil is “too light”, so its ascent will create a surplus of natural gas liquids and a shortage of heavier distillates. Less discussed is the opportunity in this imbalance. Hence this note highlights one such opportunity, based on an intriguing patent from Chevron, which could convert ethylene into diesel and jet fuel, to maximise value as its shale business ramps up.
Conclusions and Further Work?
Shale’s light product slate may create opportunities for integrated companies. Chevron’s ethylene-to-diesel patents are one example. But we have also seen a surprising uptick among other Oil Majors in patent filings for GTL, for oxidative coupling of methane and for a process to convert C3-4s into gasoline and diesel range molecules.