US Shale Under Pressure TRISHA CURTIS PETRONERDS - PRESIDENT AND - - PowerPoint PPT Presentation

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US Shale Under Pressure TRISHA CURTIS PETRONERDS - PRESIDENT AND - - PowerPoint PPT Presentation

Apr 02, 2023 326 likes •677 views

US Shale Under Pressure TRISHA CURTIS PETRONERDS - PRESIDENT AND CO-FOUNDER OXFORD INSTITUTE FOR ENERGY STUDIES OIL DAY NOVEMBER 15, 2019 1 PETRONERDS LLC | WWW.PETRONERDS.COM | 970-329-1645 Market Pressure for Public

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SLIDE 1

US Shale – Under Pressure

TRISHA CURTIS – PETRONERDS - PRESIDENT AND CO-FOUNDER OXFORD INSTITUTE FOR ENERGY STUDIES – OIL DAY NOVEMBER 15, 2019

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PETRONERDS LLC | WWW.PETRONERDS.COM | 970-329-1645

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SLIDE 2

Market Pressure for Public Companies

Transition and Shake Out

Limited capital access and an expectation that many small and mid-cap producers will be unable to survive a prolonged downturn Production has remained resilient

S&P 500 Shrinkage – Loss of Generalist Investor

Permian Focus – Rockies & Williston Basin producers struggling for attention Small and Mid-Large Cap Pressure

Market Pressure

Muted Oil Prices (Plenty of Supply, Demand Growth Concerns) Investor Pressure – Returns, Spacing/Inventory, ESG, Climate Change, Peak Demand

PETRONERDS LLC | WWW.PETRONERDS.COM | 970-329-1645

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SLIDE 3

Shale Market Dynamics

PETRONERDS LLC | WWW.PETRONERDS.COM | 970-329-1645

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Generalist Investor has Left the Oil Sector - Activists Opportunity for Consolidation - PE and Small Players, but Significant Consolidation has Not Yet Occurred Investor Pressure - Shareholder Returns/Positive Free Cash Flow/Share Price Growth? How? BIG Shale Demand – Majors Pushing Permian and Short Cycle Bifurcation between Majors and Large Caps and Small/Mid Caps Well Spacing/Inventory/Depletion – ROR vs. NPV

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SLIDE 4

Evolution of Investor Pressure

Pre-2014: Need to diversify beyond the Bakken 2014 Oil Price Correction: Pump and produce, High IPs, Cash Flow 2015 to 2016: PERMANIA, Prices are sub-$60, buy anything and everything (dry powder, no production, at any cost), FOMO

I. Strict drilling and leasing requirements follow

2017: Begin focusing on cash flow 2018: Investor pressure on returns and free cash flow continues to build, oil prices move up H1 2019 – Generalist investor is growing weary of shale companies. Free cash flow neutrality is not enough, serious returns are needed.

I. Expecting mergers and acquisitions II. Favoring majors and short cycle III. Unclear what would drive share price growth at this point

PETRONERDS LLC | WWW.PETRONERDS.COM | 970-329-1645

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Investment Decisions are Being Pushed Toward Shorter Cycles

…..the geopolitics of peak oil demand….even if its not happening today the psychology is influencing events today. …It is making it harder for companies to raise money. It is pushing investment into short cycle…rather than…long cycle…so its already having a big influence on what’s going on in markets and the energy sector even if it isn’t a reality, we don’t expect it be a reality for a long time. Megan O’Sullivan, Harvard

PETRONERDS LLC | WWW.PETRONERDS.COM | 970-329-1645

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Davos Panel, January 2019

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SLIDE 6

US Shale Basin Liquid Production is Over 8 mbd

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PETRONERDS LLC | WWW.PETRONERDS.COM | 970-329-1645

Source: PetroNerds, DrillingInfo

  • 1,000,000

2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000 9,000,000 1/1/2010 9/1/2010 5/1/2011 1/1/2012 9/1/2012 5/1/2013 1/1/2014 9/1/2014 5/1/2015 1/1/2016 9/1/2016 5/1/2017 1/1/2018 9/1/2018 5/1/2019 BARRELS PER DAY Williston Permian Anadarko Denver Julesburg Powder River Eagle Ford

  • 500,000

1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000 4,000,000 4,500,000 5,000,000 1/1/2010 9/1/2010 5/1/2011 1/1/2012 9/1/2012 5/1/2013 1/1/2014 9/1/2014 5/1/2015 1/1/2016 9/1/2016 5/1/2017 1/1/2018 9/1/2018 5/1/2019 BARRELS PER DAY Williston Permian Anadarko Denver Julesburg Powder River Eagle Ford

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SLIDE 7

Majors Continue Growth in the Permian Basin

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PETRONERDS LLC | WWW.PETRONERDS.COM | 970-329-1645

Source: Chevron Q3 2019 Earnings, November 2019 Source: ExxonMobil Q3 Earnings, November 2019

Short cycle, completive, strong breakevens, growth now - not later.

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SLIDE 8

PETRONERDS LLC | WWW.PETRONERDS.COM | 970-329-1645

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Are well spacing issues really going to kill the boom?

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SLIDE 9

Thinking about the amount of wells per targeted zone – both horizontally and vertically

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PETRONERDS LLC | WWW.PETRONERDS.COM | 970-329-1645

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The Permian Basin Learning Curve

PETRONERDS LLC | WWW.PETRONERDS.COM | 970-329-1645

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Source: Pioneer Natural Resources Oct 2013 Investor Presentation

$- $20 $40 $60 $80 $100 $120 100 200 300 400 500 600

$ Per Barrel # of Rigs

Horizontal Vertical Total Cushing OK WTI Spot Price FOB $/bbl

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SLIDE 11

Understanding the Hype: Long-Term Potential – “Stacked Pay”

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PETRONERDS LLC | WWW.PETRONERDS.COM | 970-329-1645

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SLIDE 12

Spacing Tests Underperform and Further Spook Investors

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PETRONERDS LLC | WWW.PETRONERDS.COM | 970-329-1645

2017 – 33 wells, only 330 ft apart 2019 – “Dominator” project, 29 wells, downspace test 50 percent vertically and horizontally

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SLIDE 13

Concho’s Spacing Revisions

PETRONERDS LLC | WWW.PETRONERDS.COM | 970-329-1645

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Source: Concho Resources Investor Presentation, Q3 2019

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SLIDE 14

How many wells can you drill?

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PETRONERDS LLC | WWW.PETRONERDS.COM | 970-329-1645

Source: Diamondback Energy Investor Presentations, Q3 2019 and Q2 2019

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SLIDE 15

Differentiated Views on Well Spacing

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PETRONERDS LLC | WWW.PETRONERDS.COM | 970-329-1645

Source: EOG Q2 2019 Earnings, Pioneer Natural Resources September 2019 Investor Presentation

Not a one size fits all - EOG vs. PXD on Well Spacing

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SLIDE 16

Energy’s Weighting in the S&P 500 is less than 5%

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PETRONERDS LLC | WWW.PETRONERDS.COM | 970-329-1645

Information Technology 20% Health Care 16% Financials 14% Consumer Discretionary 10% Communicati

  • ns Services

10% Industrials 9% Consumer Staples 7% Energy 5% Utilities 3% Real Estate 3% Materials 3%

Source: Bloomberg, September 21, 2018 Source: The Balance, November 2018 https://www.barchart.com/stocks/indices/sp-sector/energies

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Top Permian Basin Oil Producers

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PETRONERDS LLC | WWW.PETRONERDS.COM | 970-329-1645

Permian Basin Operator Latest Oil Production - Barrels Per Day Latest Gas Production - mcf/day

1 OCCIDENTAL PETROLEUM 498,925 1,544,337 2 PIONEER NATURAL RESOURCES 295,728 723,330 3 CONCHO RESOURCES 293,581 1,012,001 4 EOG RESOURCES 250,104 851,808 5 DIAMONDBACK ENERGY 234,795 574,155 6 EXXON MOBIL 196,534 586,199 7 CHEVRON 133,370 586,050 8 APACHE 119,368 820,717 9 PARSLEY ENERGY 117,763 304,094 10 ENDEAVOR ENERGY RESOURCES 105,837 219,238 11 CIMAREX ENERGY 100,384 804,243 12 ENCANA 100,165 238,700 13 DEVON ENERGY 91,061 339,470 14 SM ENERGY 77,845 138,164 15 MEWBOURNE OIL COMPANY 74,403 253,196 16 SURGE OPERATING 69,306 87,436 17 WPX ENERGY 61,839 335,473 18 SHELL 61,272 149,224 19 CENTENNIAL RESOURCE DEVELOPMENT 61,095 224,538 20 NOBLE ENERGY 56,318 153,029

Oxy – 48% Pioneer – 38 % Concho – 59% EOG – 46 % Diamondback – 37 % Exxon – 19% Chevron – 9% Apache – 54 % Devon – 44 % Noble – 34%

Source: PetroNerds, DrillingInfo

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SLIDE 18

2016 vs. 2020 Capital Sourcing Shift

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PETRONERDS LLC | WWW.PETRONERDS.COM | 970-329-1645

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SLIDE 19

Activity Levels and Oil Price

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PETRONERDS LLC | WWW.PETRONERDS.COM | 970-329-1645

$- $20 $40 $60 $80 $100 $120 500 1,000 1,500 2,000 2,500 2/4/2011 2/4/2012 2/4/2013 2/4/2014 2/4/2015 2/4/2016 2/4/2017 2/4/2018 2/4/2019 $ Per Barrel # of Rigs Oil Gas Total Permian Basin Oil Rig Count Cushing OK WTI Spot Price FOB $/bbl

Source: PetroNerds, EIA, DrillingInfo, Baker Hughes

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Pipeline additions have created a material impact in pricing

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PETRONERDS LLC | WWW.PETRONERDS.COM | 970-329-1645

Source: Enterprise Products Partners Analyst Meeting Presentation, April 2019

Midland Argus prices are at a slight premium to WTI

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SLIDE 21

U.S. Crude Oil Exports are Critical to Permian Development

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PETRONERDS LLC | WWW.PETRONERDS.COM | 970-329-1645

  • 500

1,000 1,500 2,000 2,500 3,000 3,500 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Jan-19 May-19

Barrels Per Day

Canada China Korea Taiwan India Italy Netherlands United Arab Emirates Thailand United Kingdom U.S. Exports of Crude Oil

Source: PetroNerds, EIA, Enterprise Products Partners

June 2019 – 3.7 mbd Mostly light sweet

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SLIDE 22

Production, Activity, and Productivity

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PETRONERDS LLC | WWW.PETRONERDS.COM | 970-329-1645

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SLIDE 23

Permian Basin Oil, Gas, and Water Production

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PETRONERDS LLC | WWW.PETRONERDS.COM | 970-329-1645

Source: PetroNerds, DrillingInfo

  • 500,000

1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000 4,000,000 4,500,000 5,000,000 1/1/2010 9/1/2010 5/1/2011 1/1/2012 9/1/2012 5/1/2013 1/1/2014 9/1/2014 5/1/2015 1/1/2016 9/1/2016 5/1/2017 1/1/2018 9/1/2018 5/1/2019 BARRELS PER DAY

Horizontal vs. Vertical Well Production

Liquid Horizontal Vertical

  • 5,000,000

10,000,000 15,000,000 20,000,000 25,000,000 1/1/2010 9/1/2010 5/1/2011 1/1/2012 9/1/2012 5/1/2013 1/1/2014 9/1/2014 5/1/2015 1/1/2016 9/1/2016 5/1/2017 1/1/2018 9/1/2018 5/1/2019 BARRELS PER DAY AND MCF/DAU

Water and Gas Production

Total Gas Total Water Horizontal Gas Horizontal Water

4.3 mbd

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$- $20 $40 $60 $80 $100 $120 100 200 300 400 500 600 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 $ PER BARREL # OF RIGS, WELLS, AND FRAC SPREAD

Permian Frac Spread Count, Rig Count, Horizontal Well Additions

Permian Basin Oil Rig Count Permian Basin Horizontal Monthly Well Additions Cushing OK WTI Spot Price FOB $/bbl

Permian Production and Rig Count and WTI

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PETRONERDS LLC | WWW.PETRONERDS.COM | 970-329-1645

Source: PetroNerds, EIA, DrillingInfo, Baker Hughes

$- $20 $40 $60 $80 $100 $120

  • 500

1,000 1,500 2,000 2,500 3,000 3,500 4,000 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 $ PER BARREL # OF DUCS

Permian DUCs and WTI

Permian DUCs Cushing OK WTI Spot Price FOB $/bbl

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Permian Basin Forecast

PETRONERDS LLC | WWW.PETRONERDS.COM | 970-329-1645

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The Permian Basin currently requires between 300 and 400 well additions each month remain flat above 4 mbd.

Source: PetroNerds, DrillingInfo, EIA

$- $20 $40 $60 $80 $100 $120

  • 1,000,000

2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 Sep-2009 Mar-2010 Sep-2010 Mar-2011 Sep-2011 Mar-2012 Sep-2012 Mar-2013 Sep-2013 Mar-2014 Sep-2014 Mar-2015 Sep-2015 Mar-2016 Sep-2016 Mar-2017 Sep-2017 Mar-2018 Sep-2018 Mar-2019 Sep-2019 Mar-2020 Sep-2020 Mar-2021 Sep-2021 $ Per Barrel Barrels Per Day Historical Production Flat/Current Rate Forecast - 400 Wells/Month Growth Forecast - 450 Wells/Month Moderated Decline Forecast - 300 Wells/Month Decline Forecast - 250 Wells/Month Rapid Decline Forecast - 200 Wells/Month Cushing OK WTI Spot Price FOB $/bbl

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Permian Basin Productivity

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PETRONERDS LLC | WWW.PETRONERDS.COM | 970-329-1645

The sharp rise in vertical depth in late 2019 is attributable to an incomplete data set for recent well completions.

Source: PetroNerds, DrillingInfo

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SLIDE 27

Williston Basin/Bakken Productivity

PETRONERDS LLC | WWW.PETRONERDS.COM | 970-329-1645

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Well Performance, Density, and Stacked Pay

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PETRONERDS LLC | WWW.PETRONERDS.COM | 970-329-1645

Horizontal wells 2014 and onwards.

15 24 31 34 9.5 10.34 10.9 12 1 2 3 4 Initial 6 mo. oil per lateral foot Total current well count per10 square mile spacing unit depth tiers targeted Well Count 6 Mo Liquids

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Delaware Basin Productivity

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PETRONERDS LLC | WWW.PETRONERDS.COM | 970-329-1645

Source: PetroNerds, DrillingInfo

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Midland Basin Productivity

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PETRONERDS LLC | WWW.PETRONERDS.COM | 970-329-1645

Source: PetroNerds, DrillingInfo

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Financials and Hedges

SELECTED PERMIAN OPERATORS

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PETRONERDS LLC | WWW.PETRONERDS.COM | 970-329-1645

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Hedged Share of Production for Selected Operators

PETRONERDS LLC | WWW.PETRONERDS.COM | 970-329-1645

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Source: PetroNerds, HedgeAware

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ExxonMobil - XOM

PETRONERDS LLC | WWW.PETRONERDS.COM | 970-329-1645

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Source: PetroNerds, HedgeAware

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Concho Resources - CXO

PETRONERDS LLC | WWW.PETRONERDS.COM | 970-329-1645

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Source: PetroNerds, HedgeAware