The key challenge for the US shale industry is to continue improving productivity per well, as illustrated repeatedly in our research. Hence, this short note reviews an advance in fracturing fluids, which has been patented by BP. Diverter compositions are optimised across successive pressurization cycles, to create dendritic fracture geometries, which will enhance stimulated rock volumes.
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.
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.
Discussed companies include Apache, BP, Conoco, Chevron, Devon, ExxonMobil, Halliburton, Occidental, Pioneeer & Schlumberger.
Page 2 compares 2019’s shale performance to-date with our January forecasts, identifying that initial-month producutivity has been 20% weaker YoY.
Page 3-4 shows how continued productivity improvements matter, to unlock >20Mbpd of potential US shale output, plus $300bn of FCF by 2025 (at $50/bbl oil).
Pages 5-8 explain away the apparent degradation in resource productivity: it is a function of three alterations to completion designs.
Pages 9-12 outline 350 technical papers from the shale industry in summer-2019. They restore confidence: the industry is not facing systemic resource issues.
Page 12 covers 24 technical papers into “parent-child” issues. We were surprised by the number that were ‘negative’ versus the pragmatic solutions offered in others.
Page 13, 14 & 17 cover leading digitalization technologies: deployment of machine learning increased 5x YoY, while DAS/DTS increased 3x YoY in 2019.
Pages 14-16 cover the maturation of shale-EOR, which was the greatest YoY improvement, reaching 32 papers in 2019. The cutting-edge of EOR is exciting.
Page 18 outlines other technical highlights to drive future productivity higher.
What if there were a technology to sequester CO2, double shale productivity, earn 15-30% IRRs and it was on the cusp of commercialization? Promising momentum is building, at the nexus of decarbonised gas-power and Permian CO2-EOR…
First, this week, we finished reviewing 350 technical papers from the shale industry’s 2019 URTEC conference. The biggest YoY delta is that publications into EOR rose 2.3x. CO2-EOR is favored (chart below). Further insights from the technical literature will follow in a detailed publication, but importantly we do not see underlying productivity growth in shale to be slowing.
Second, we re-read Occidental Petroleum’s 2Q19 conference call. More vocally than ever before, Oxy hinted it could take the pure CO2 from decarbonised power plants and use it for Permian-EOR; with its equity interest in NetPower, 1.6M net Permian acres, and leading CO2-EOR technology. Quotes from the call are below:
- On CO2-EOR: “We are investing in technologies that will not only lower our cost of CO2 for enhanced oil recovery in our Permian conventional reservoirs, but will also bring forward the application of CO2 enhanced oil recovery to shales across the Permian, D.J. and Powder River basins”
- On decarbonised gas power: “What it does is, it takes natural gas combines that with oxygen and burns it together, and that’s what creates electricity and it creates that electricity at lower costs… one of our solutions is to put that in the Permian… for use in our enhanced oil recovery… It will utilize our gas that that if we sold it would make nearly as much”.
- On the opportunity: “We are getting calls from all over the world, with people wanting our help to — figure out how to capture CO2 from industrial sources, and then what to do with it and oil reservoirs”.
Our extensive work on these themes includes two deep-dive reports linked above. Our underlying models can connect c10% IRRs on oxy-combustion gas plants (first chart below) with 15-30% IRRs at Permian CO2-EOR (second chart below). On these numbers, the overall NPV10 of an integrated system could surpass $10bn.
EOR remains one of the most exciting avenues to boost Permian production potential. So far, our shale forecasts assume little direct benefit (chart below). But an indirect benefit is implicit, as we assume 10% annualized productivity growth to 2025, which would underpin a very strong ramp-up (chart below). 2023-25 currently look well-supplied in our oil market model, due to falling decline rates, but this could be compounded by CO2-EOR.
We are more positive on the ascent of gas, stoked by increasing usage in decarbonised power. We see potential for gas demand to treble by 2050.
Completing a shale well depends on over 40 variables. Each one can be optimised using data. It follows that next-generation data will deliver next-generation shale productivity. Hence our new, 25-page note focuses on the most exciting new data methodology we have seen across the shale space: distributed acoustic sensing (DAS) using fiber-optic cables. It has now reached critical momentum, to transform the shale industry in six main ways…
(1) Productivity gains. DAS advances the shale industry’s quest for ‘ideal’ completions (chart above). The best studies to-date have already achieved c25% production uplifts and c10% cost-savings. Pages 2-14 describe the technology, its maturation and the recent step-change for its application in shale.
(2) Further DAS improvements could deliver further productivity gains throughout the 2020s, materially lowering the long-term decline rates in shale basins (see page 17).
(3) Economics break even at $15/bbl when deploying DAS in a cross-well, adding $0.8M of NPV10 at ($40/bbl oil) (see page 18).
(4) DAS levels the playing field, allowing newer basins and smaller operators to derive competitive designs quickly. Without this ability large operators in the Permian will crowd out the rest (see pages 15-16).
(5) DAS disrupts the Services industry, gaining dominance over other diagnostic techniques, such as seismic. Services’ adaptability is screened (see pages 20-21)
(6) DAS will give E&Ps and Majors an edge. To help quantify who is in the lead, we identify and rank the “Top Dozen” operators’ progress, based on their patents and technical papers (see pages 22-24) .
Will Shale-EOR add another leg of unconventional upside? The topic jumped into the ‘Top 10’ most researched shale themes last year, hence we have reviewed the opportunity in depth. Stranded in-basin gas will improve the economics to c20% IRRs (at $50 oil). Production per well can rise by 1.5-2x. The theme could add 2.5Mbpd to 2025 output.
Pages 3-5 review the theory of shale EOR. Its recovery factors could in principle surpass conventional EOR.
Pages 6-7 review lab results and field trials. They have been promising, suggesting >1.5-2x production uplifts should be attainable.
Pages 8-10 review the economics in detail. Our full model is informed by technical papers, and can be downloaded here.
Page 11 tabulates key statistics for using CO2 as a huff-n-puff injectant, the economic opportunities for carbon capture, but also the challenges.
Pages 12-13 attempt to quantify the production upside from shale EOR, by adapting our basin models.
Pages 14-15 cover the remaining challenges, including E&P patent-filing insights.
Page 16 lists a handful of companiesat the forefront of shale-EOR, including some earlier-stage start-ups.
Next-generation technology in small-scale LNG has potential to reshape the global shipping-fuels industry. Especially after IMO 2020 sulphur regulations, LNG should compete with diesel. Opportunities in trucking and shale are less clear-cut.
This note outlines the technologies, economics and opportunities for LNG as a transport fuel, following a three-month investigation.
- Why technology matters. Pages 2-4 of the note describe incumbent technologies in small-scale LNG, and the need for superior solutions.
- The cutting edge . Pages 5-7 draw on patents and technical papers to describe next-generation technologies, at the cutting edge of small-scale LNG. We model that they are economic. They can can provide LNG to the market at $10/mcf.
- Potential to transform shipping-fuels. Pages 9-13 find strong economic upside for novel LNG technologies in the shipping industry, with potential to create 40-60MTpa of incremental LNG demand, looking across the global shipping fleet.
- Less positive on LNG as a trucking fuel. Pages 14-15 explain why the economics are more challenging for LNG use in land-transportation, i.e., trucking.
- Less positive on LNG use in shale. Page 16 explains, similarly, why LNG is less advantageous in the shale patch than converting rigs and frac spreads to piped gas.
- Other technologies. Page 17 notes other companies with interesting offerings in small-scale LNG liquefaction, including advances by Exxon and Shell.
Have further questions? Please contact us and we’ll be happy to help: [email protected]
EOG has patented a system to deploy pressure and temperature sensors in its frac plugs, which are then retrieved at the surface, providing low cost data on each frac stage. The data can be used to improve subsequent frac stages. We model the economic uplifts at +$1M NPV and +5% IRR per well (at $50 oil).
Pioneer Natural Resources is improving the accuracy of its Midland basin depth-models by up to 40%, using a machine-learning algorithm to re-calibrate its seismic from well logs. Faster drilling and better production rates should follow.
The Majors’ deepening interest in shale was illustrated by Chevron’s $50bn acquisition of Anadarko. Consolidating in the Permian fits our ‘Winner Takes All‘ thesis.
But who else wants more shale in their portfolio? This is not to speculate on M&A, but simply looking at the companies’ research activity last year…