Shale Oil Fiasco

[James Gautreau + 86]

Proxy versus Real War

As a result, while there are many possible outcomes, there are two extreme but plausible scenarios for Iran, the Middle East and the world oil market – Proxy War and Real War.

Under Proxy War, Iranian-backed militias in Lebanon, Syria, Gaza, Iraq and Yemen would ramp up attacks on U.S.-allied forces in the Middle East, while Iran and its proxies would launch sporadic missile and sabotage attacks on oil and gas infrastructure and tankers transiting the straits of Bab al-Mandeb and Hormuz. But their malign activities are constrained by two factors: U.S. and aligned forces hitting back hard in a disciplined fashion; and Iran’s financial difficulties significantly cutting funding and resources for their proxy forces.Related: California Threatens Gasoline Car Ban

In response to attacks and Iranian efforts to build up military assets in the Levant, the Israeli Defense Forces (IDF) would launch airstrikes on Hamas in Gaza, Hezbollah in Lebanon and Iranian-backed forces in Syria, while Saudi Arabia and UAE would boost their military activities to crush Houthi rebels in Yemen. By agreement, the U.S. will continue to patrol regional waters and respond militarily to any attacks to shipping and their armed forces in the region.

In this geopolitically-charged environment, the spot price of international benchmark Brent crude tends to average around US$85 per barrel, US$15 more than if Iranian oil exports were not constrained by U.S. sanctions, with occasional spikes above US$100 per barrel – despite continuing strong growth in U.S. oil production through the second half of the next decade.

The loss of roughly 2 million b/d of Iranian crude and condensate from the world oil market – cutting Tehran’s oil exports by about three-quarters – would drive spare capacity well below 1 million b/d, making crude prices more susceptible to supply disruptions, Iranian-inspired or otherwise.

Under Real War, the less plausible of the two extreme scenarios, Iran’s proxy war and related nuclear activities would be perceived as too much by Trump, especially after much nudging by hawkish advisors and regional allies. In March 2020, Saudi Arabia, Israel, UAE and the U.S. would launch a coordinated attack against Iranian aligned forces and assets in the Middle East.

In this scenario, the IDF invades Gaza and southern Lebanon to battle Hamas and Hezbollah, respectively, and launches massive airstrikes against Iranian military resources in Syria. Saudi Arabia, UAE and the U.S. launch airstrikes and missile attacks on Iranian military forces, oil facilities and major cities. Iran, and its proxy forces, respond in kind. Both sides refrain from a land attack, with the 120,000 U.S. troops stationed in the Gulf insufficient to launch a successful invasion of Iran but plenty to deter Tehran and its proxies. China and Russia call for an emergency UN Security Council meeting to condemn American-led aggression against Iran, but Britain, France and the US – the other veto holders in the council – nix a vote.

In six short weeks there is tremendous damage to oil facilities on both sides, given their proximity to the Persian Gulf region, and to major cities as well. Iran, with its fleet of fast patrol craft and arsenal of short-range rockets, is able to briefly close the Strait of Hormuz, disrupting the flow of about 18 million b/d to the world market, almost a fifth of global supply.

Brent spikes over US$250 per barrel, before falling back to around US$150 with the International Energy Agency (IEA) coordinating an emergency release of oil stocks from strategic reserves of its member countries and China releasing significant volumes from its now substantial strategic reserve as well.

Under heavy bombardment and with their military resources running low, the Iranian leadership calls for an end in hostilities and negotiations, which the U.S. and its regional allies immediately agree upon. Through negotiations a détente is achieved in the Middle East, with the two sides agreeing to demarcate spheres of influence in the region.

Saudi Arabia and the UAE agree to stop meddling in Iraq and Syria in return for Iran ending its meddling in Shiite areas of Bahrain, Yemen and Saudi Arabia. Lebanon is declared neutral territory. Iran agrees to mothball its nuclear program indefinitely and stop exporting weapons to its regional allies.

Once hostilities cease, it takes two or more years for the price of Brent to fall back into a US$60-70 per range – given necessary repairs to war damaged oil facilities in the Persian Gulf region and the rebuilding of global oil inventories – where prices remain indefinitely, capped by the spreading Shale Oil Revolution.

[0R0 + 6,251]

3 hours ago, James Gautreau said:

Under heavy bombardment and with their military resources running low, the Iranian leadership calls for an end in hostilities and negotiations, which the U.S. and its regional allies immediately agree upon. Through negotiations a détente is achieved in the Middle East, with the two sides agreeing to demarcate spheres of influence in the region.

Saudi Arabia and the UAE agree to stop meddling in Iraq and Syria in return for Iran ending its meddling in Shiite areas of Bahrain, Yemen and Saudi Arabia. Lebanon is declared neutral territory. Iran agrees to mothball its nuclear program indefinitely and stop exporting weapons to its regional allies.

Nice idea, but I think that Iran would not run out of anything since it can be fed by Russia as long as it is interested. Both the US and Russia have an interest in creating a degree of instability in the Gulf in order to divert investment into their own oil and gas fields. 

I don't expect Iran's government would survive at all. Their people are not supportive. They will use the opportunity of the Iranian forces engaged in real war to take down Qom. It may end up the most bloody overthrow of a ruling class we have seen since the Bolsheviks. The new government would settle on whatever terms demanded of it. If the theocracy remains, then the war will only stop when Iran cedes away influence anywhere and loses its oil fields permanently.

BTW the California threat is hot air. No Democrat will ever be elected dog catcher let alone have a seat in Sacramento if they actually did that. The state already looks like Singapore vs. Indonesia, with 1/3 of the state in poverty and sky high electric rates. Brazil and China are more economically egalitarian than CA. It is an empty threat and just bravado.

[remake it + 288]

46 minutes ago, 0R0 said:

I don't expect Iran's government would survive at all. Their people are not supportive. They will use the opportunity of the Iranian forces engaged in real war to take down Qom. It may end up the most bloody overthrow of a ruling class we have seen since the Bolsheviks. The new government would settle on whatever terms demanded of it. If the theocracy remains, then the war will only stop when Iran cedes away influence anywhere and loses its oil fields permanently.

Perhaps you can show how well that idea of yours fits into what has become of Afghanistan?

[0R0 + 6,251]

1 hour ago, remake it said:

Perhaps you can show how well that idea of yours fits into what has become of Afghanistan?

Nobody says it is a good idea. It is just something that would happen. Iran is not that different from Afghanistan in that Persians make up only half the country and the rest are spread out and would be happy to rid themselves of control by Persians. It may very well become another Afghanistan when devoid of "unifying" oil revenue. 

[remake it + 288]

5 minutes ago, 0R0 said:

Nobody says it is a good idea. It is just something that would happen. Iran is not that different from Afghanistan in that Persians make up only half the country and the rest are spread out and would be happy to rid themselves of control by Persians. It may very well become another Afghanistan when devoid of "unifying" oil revenue. 

Please make informed comments in future if you would like a reasoned reply.

[Rob Kramer + 696]

SA article. Data is more about stocks yoy and imports to exports than production. 

https://www.google.com/amp/s/seekingalpha.com/amp/article/4315218-uwt-is-time-to-buy-crude-oil

Author thinks the oil companies want higher prices for higher output. 

[0R0 + 6,251]

2 hours ago, remake it said:

Please make informed comments in future if you would like a reasoned reply.

Right you are, 61% more or less at URL below, no official counts provided by Iran. 10% Kurds, 16% Azerbaijani, . 

https://fanack.com/iran/population/

Still, the same argument applies, 

[remake it + 288]

6 minutes ago, 0R0 said:

Right you are, 61% more or less at URL below, no official counts provided by Iran. 10% Kurds, 16% Azerbaijani, . 

https://fanack.com/iran/population/

Still, the same argument applies, 

Thank you for the data, however, it was this that has no apparent basis

2 hours ago, remake it said:

would be happy to rid themselves of control by Persians

 

[0R0 + 6,251]

3 minutes ago, remake it said:

Thank you for the data, however, it was this that has no apparent basis

 

See potential Kurdistan. They have been fighting for a state of their own since WWI. 

https://iranpoliticsclub.net/maps/maps15/index.htm

Azeris would possibly prefer being part of Azebaijan, though I think they do better economically within an oil rich Iran.

Neo cons have been trying to assemble a plan to breakup Iran for decades. But the central government does not treat the minorities badly, and incomes are better for the most part than neighboring areas. The only group that has been treated unfairly are the Arab (Sunni) minority in the oil region and on the northern gulf coast. But it is more about being overrun and bypassed by the oil riches, not about oppression.  

[Rob Kramer + 696]

https://seekingalpha.com/article/4315036-eia-914-november-is-last-month-of-growth-until-second-half-2020?source=amp_liftigniter_recommendations_title&_gl=1*1gi75ml*_ga*T2F3bmdDMzRXTEpSeUM0TE1oQ012SXYxTEotbFRVa1NteW5LRnFfcXZvTEJ6ZEpJZEl6VXpsWjB3WnA0R0R2Yg..

These guys pop these things out faster than I can post lol. Sometimes comments have hidden jems . 

[AcK + 50]

On 1/3/2020 at 5:59 AM, remake it said:

Let's play out this hand before reshuffling the deck:

Firstly US proved reserves were over 40Bbbls at end 2018 so whichever way you want to cut LTO reserves its affect on market dynamics are relevant in terms of swing production.

Secondly while the USA is effectively awash with oil today the same cannot be said of the global situation in part due to OPEC's efforts but also as a result of natural declines non-OPEC.

Thirdly putting aside any element of market manipulation it is reasonable for prices to fall when a commodity is oversupplied and given the oil price continues to rise it is unlikely that point has been reached at $61.

Fourthly it is clear from the foregoing arguments in this thread that pumping a lot more money into LTO plays can squeeze-out more oil and that there are presently many wells (eg DUCs) that can potentially be brought into the mix - ie swing production capabilities are high.

So putting aside all the technical issues previously discussed and looking at the price of oil from a global supply and demand perspective the case for any near term strong oil price rises in the ballpark that @James Gautreau has discussed appears unlikely.

Cool - I am in agreement (broadly).

Actually missed the Dec18 update of crude oil reserves so thanks for including that. My fav figure from the publication is below - focus on the blue and yellow portions (discoveries net off production) and the cumulative data over last 10 years seemingly indicates yet plenty of supply potential. 47bn bbls is not much when you are producing 4bn bbls annually but new discoveries are still coming through. So enough reserves for 2020-21 not to be the inflection point. Sometime btw 2022-25, per @D Coyne analysis also.

Edited January 6, 2020 by AcK
For some reason always forget to attach exhibit

[AcK + 50]

On 1/5/2020 at 12:52 AM, James Gautreau said:

Proxy versus Real War

As a result, while there are many possible outcomes, there are two extreme but plausible scenarios for Iran, the Middle East and the world oil market – Proxy War and Real War.

Under Proxy War, Iranian-backed militias in Lebanon, Syria, Gaza, Iraq and Yemen would ramp up attacks on U.S.-allied forces in the Middle East, while Iran and its proxies would launch sporadic missile and sabotage attacks on oil and gas infrastructure and tankers transiting the straits of Bab al-Mandeb and Hormuz. But their malign activities are constrained by two factors: U.S. and aligned forces hitting back hard in a disciplined fashion; and Iran’s financial difficulties significantly cutting funding and resources for their proxy forces.Related: California Threatens Gasoline Car Ban

In response to attacks and Iranian efforts to build up military assets in the Levant, the Israeli Defense Forces (IDF) would launch airstrikes on Hamas in Gaza, Hezbollah in Lebanon and Iranian-backed forces in Syria, while Saudi Arabia and UAE would boost their military activities to crush Houthi rebels in Yemen. By agreement, the U.S. will continue to patrol regional waters and respond militarily to any attacks to shipping and their armed forces in the region.

In this geopolitically-charged environment, the spot price of international benchmark Brent crude tends to average around US$85 per barrel, US$15 more than if Iranian oil exports were not constrained by U.S. sanctions, with occasional spikes above US$100 per barrel – despite continuing strong growth in U.S. oil production through the second half of the next decade.

The loss of roughly 2 million b/d of Iranian crude and condensate from the world oil market – cutting Tehran’s oil exports by about three-quarters – would drive spare capacity well below 1 million b/d, making crude prices more susceptible to supply disruptions, Iranian-inspired or otherwise.

Under Real War, the less plausible of the two extreme scenarios, Iran’s proxy war and related nuclear activities would be perceived as too much by Trump, especially after much nudging by hawkish advisors and regional allies. In March 2020, Saudi Arabia, Israel, UAE and the U.S. would launch a coordinated attack against Iranian aligned forces and assets in the Middle East.

In this scenario, the IDF invades Gaza and southern Lebanon to battle Hamas and Hezbollah, respectively, and launches massive airstrikes against Iranian military resources in Syria. Saudi Arabia, UAE and the U.S. launch airstrikes and missile attacks on Iranian military forces, oil facilities and major cities. Iran, and its proxy forces, respond in kind. Both sides refrain from a land attack, with the 120,000 U.S. troops stationed in the Gulf insufficient to launch a successful invasion of Iran but plenty to deter Tehran and its proxies. China and Russia call for an emergency UN Security Council meeting to condemn American-led aggression against Iran, but Britain, France and the US – the other veto holders in the council – nix a vote.

In six short weeks there is tremendous damage to oil facilities on both sides, given their proximity to the Persian Gulf region, and to major cities as well. Iran, with its fleet of fast patrol craft and arsenal of short-range rockets, is able to briefly close the Strait of Hormuz, disrupting the flow of about 18 million b/d to the world market, almost a fifth of global supply.

Brent spikes over US$250 per barrel, before falling back to around US$150 with the International Energy Agency (IEA) coordinating an emergency release of oil stocks from strategic reserves of its member countries and China releasing significant volumes from its now substantial strategic reserve as well.

Under heavy bombardment and with their military resources running low, the Iranian leadership calls for an end in hostilities and negotiations, which the U.S. and its regional allies immediately agree upon. Through negotiations a détente is achieved in the Middle East, with the two sides agreeing to demarcate spheres of influence in the region.

Saudi Arabia and the UAE agree to stop meddling in Iraq and Syria in return for Iran ending its meddling in Shiite areas of Bahrain, Yemen and Saudi Arabia. Lebanon is declared neutral territory. Iran agrees to mothball its nuclear program indefinitely and stop exporting weapons to its regional allies.

Once hostilities cease, it takes two or more years for the price of Brent to fall back into a US$60-70 per range – given necessary repairs to war damaged oil facilities in the Persian Gulf region and the rebuilding of global oil inventories – where prices remain indefinitely, capped by the spreading Shale Oil Revolution.

Sorry I am confused.

Is your case for US$150-250 crude based on Shale supply hitting inflection point (de-growth) or geopolitical risks - or both happening together (cause independently they are not enough to wreck so much damage)??

Edited January 6, 2020 by AcK

[James Gautreau + 86]

I've predicted that 2020 will be the most violent year in America since 1968. A big part of that will be the rise in oil price, the collapse in the stock market, and the 2020 elections. The simultaneous peak in LTO, world conventional, and disruptions in suppply due to Iran and America arguing over WMD will send oil prices to $300 a barrel. The big part of this will be a missile swarm attack on an aircraft carrier. When it sinks, America hegemony will be gone. Trump's bravado will no longer be tenable. He'll look like a fool and lose by a landslide. 

[0R0 + 6,251]

 

"The 20% revision to official US reserves, on the other hand, is due to higher reserves reported by the operators and is based on more stringent rules from the US Security Exchange Commission,” says Per Magnus Nysveen, Head of Analysis at Rystad Energy."

We are still at the reserve delineation stage for shale. So the predictions based on proven reserves are premature and provide an early peak point and too high a price estimate. While a doubling of resource from here is not a geological probability since the geological survey is close to complete and has had little onshore expansion that I am aware of the last decade, a double of proven reserves over the next decade in shale is very likely, as only 10% of the resource has been delineated to the point of a drilling plan by specific operators, vs. 25% in Russia, 20% in Iran 33% in Saudi. Just by changing the proven reserve definition up from 5 year's planned production to 10 years, as industry is pressing the FASB to allow, would more than double it. 

Argentine shale is not yet incorporated completely into resource estimates for the country, but the geological formation is potentially more than double the size of the Permian as the shale is reported as 250 ft thick vs. 170 for the Permian, and covers perhaps double the area. Instead of wondering where the substantial increase in international rig counts earlier in 2019 was coming from I looked it up and it is from Europe. I guess because of the weaker Euro or Krone FX rates making oil drilling in Europe more attractive. 

https://stockcharts.com/freecharts/gallery.html?$BRENT:$nokUSD

Rig counts

https://bakerhughesrigcount.gcs-web.com/intl-rig-count?c=79687&p=irol-rigcountsintl

Another issue is that of recoveries we should expect as some new techniques apparently will increase those potentially to 20% in some lithographies, but perhaps not in others. Jury is still out. If it is closer to 20% than to historical 5% or current reported 7-8% then the reserves will grow dramatically. 

Then comes the issue of lowering drill and frac costs. Some are claiming $600/ft or even lower with thin water and lower sand loadings of finer sand (100 mesh), using waste NG to power equipment, and using water from the wells themselves and drill guide technology. To the degree this is true, the cost side would allow production at even lower prices even with the existing debt load and bad lease costs. AR are talking $5M all in on a 10k ft well. Don't know if that will be possible elsewhere. But a useful benchmark as to the bottom end of cost levels.  

Finally, the accounting from PWC of the stats of shale drills shows no difference between the different tier wells. Not clear whether that is because of initial misclassification or because first run output is pretty much the same for tier 2 and 3 wells, so we would only see the difference in future refracs. Seems outlandish, but those are the stats so far.  If the stats hold, then there is no real high grading possible and no reason to expect a fall in well recoveries over time. 

So I don't see how a sharp oil spike happens and sticks for any substantial length of time. 

The argument for a cash cost breakeven at well below $50 is likely going to be correct soon enough in the rather near future. So for companies with renegotiated leases and less debt, the operation out of cash flow may still provide growing production despite financial markets being closed to energy production funding for quite a while now. 

 

 

[cbrasher1 + 272]

here is a bit of info. regarding what is planned for the Permian, this chart outlines well permits by company compared to what they applied for this tine last year.  By looks of it several new wells will be drilled, more than last year.

[Jan van Eck + 7,558]

16 hours ago, James Gautreau said:

I've predicted that 2020 will be the most violent year in America since 1968. A big part of that will be the rise in oil price, the collapse in the stock market, and the 2020 elections. The simultaneous peak in LTO, world conventional, and disruptions in supply due to Iran and America arguing over WMD will send oil prices to $300 a barrel. The big part of this will be a missile swarm attack on an aircraft carrier. When it sinks, America hegemony will be gone. Trump's bravado will no longer be tenable. He'll look like a fool and lose by a landslide. 

James, I have watched you write some rather far-out stuff on this Forum, but I must say that this Prediction of yours is getting out into the Outer Rim territory of the galaxy.  Even Yoda would have trouble trying to locate you. 

"2020 will be the most violent year in America since 1968."  While US society is remarkably unequal in both income and assets, that alone does not provoke violent outbursts.  Americans are peculiarly sanguine with the very rich, billionaires, running for and obtaining political office.  Look at Bloomberg, or Andrew Yang, or Romney, all kinds of rich people run for office and substantial numbers of very ordinary voters do vote for them.  How you conclude that this will translate into "a violent year" when there is near-full employment is hard to ascertain.  I just don't see your logic path here. 

"Disruptions in supply due to Iran and USA arguing..."   The USA does not argue.  It commands.  You disobey, then expect some cruise missile or smart bomb to get dropped into your back pocket. Do you seriously think Iran has any capability to resist the US military?  

"Missile swarm attack on an aircraft carrier."  The only swarm that could work would be a WIG-boat attack. That would require a carrier being close-in, inside the Persian Gulf and with limited maneuvering room.  The Navy is keeping its carriers several hundred miles out to sea.  The Iranians have zero chance of swarming a carrier group out in blue-water.  Forget this idea. 

"When it sinks, America's hegemony will be gone."   Even in the very unlikely event that a massively compartmentalized ship such as an 1,150-ft long carrier would sink, which would require a staggering number of strikes below the waterline, that is hardly going to collapse US hegemony, as you call it.  The US can crank out mega-carriers like popcorn.  Don't believe it?  Take a trip down to Newport News and look at the massive shipyards building Navy ships there.  Hardware is instantly replaceable, in the USA.  Not even remotely an issue.  Sink a US carrier and the Navy picks up another 100,000 recruits the next day.  

"He'll look like a fool. [Trump]."   I don't think so.  Besides, nobody really cares.  Trump or any US President would simply send in the military to mop up Iran, and without limiting Rules of Engagement.   The Iranian military is all gone in two days flat.  Bombed into oblivion.   And do't think the Iranians don't know that.  They will attempt to bleed the US with proxy combatants, and the US will respond with more assassination drone attacks on the leadership.   You cannot seriously think that in that event even the most dedicated mullah is going to stick his neck out once the smart bombs start to rain down.  

On a personal note, my view is that if Trump blasts the Ayatollahs and the Quds commanders into oblivion, he is dong the planet a big favor.  I rather doubt I am alone in this assessment. 

[remake it + 288]

16 minutes ago, Jan van Eck said:

On a personal note, my view is that if Trump blasts the Ayatollahs and the Quds commanders into oblivion, he is dong the planet a big favor.  I rather doubt I am alone in this assessment. 

Why is it that there are more Muslims presently saying the exact opposite?

[Jan van Eck + 7,558]

1 minute ago, remake it said:

Why is it that there are more Muslims presently saying the exact opposite?

Idiot Bot. Go away.  Stupid useless hacker algorithms. 

[Old-Ruffneck + 1,177]

1 hour ago, cbrasher1 said:

here is a bit of info. regarding what is planned for the Permian, this chart outlines well permits by company compared to what they applied for this tine last year.  By looks of it several new wells will be drilled, more than last year.

I hope so, but I am just alittle bit skeptical...money drying up fairly fast.

[cbrasher1 + 272]

14 minutes ago, Old-Ruffneck said:

I hope so, but I am just alittle bit skeptical...money drying up fairly fast.

we are currently on Oasis sites, rigging up a 2nd h&p rig and started frac jobs.  Last year they exhausted their budget by September and just went to running one rig.  According to the chart, they're looking at 20+ wells, we'll see how much they use restraint this year.  Some of those smaller companies I've not heard much about.

[Old-Ruffneck + 1,177]

2 minutes ago, cbrasher1 said:

we are currently on Oasis sites, rigging up a 2nd h&p rig and started frac jobs.  Last year they exhausted their budget by September and just went to running one rig.  According to the chart, they're looking at 20+ wells, we'll see how much they use restraint this year.  Some of those smaller companies I've not heard much about.

I'm guessing here, but I about bet they across in South East NM. Only way they're going to make it. All the good leases are gone, Bought, sold, re-sold. The solid thing is in the Delaware they are drilling fast and hittin' sweet spots. May take a couple re-fracks over few years but as tech keeps getting better, your seeing more longevity now. As long as money keeps rolling, going to see some neat innovation especially off-shore.

[cbrasher1 + 272]

30 minutes ago, Old-Ruffneck said:

I'm guessing here, but I about bet they across in South East NM. Only way they're going to make it. All the good leases are gone, Bought, sold, re-sold. The solid thing is in the Delaware they are drilling fast and hittin' sweet spots. 

Outside Pyote about 8 miles on 2355.  About 7 or 8 other rigs and 3 or 4 frac sites in eye's view run by other operators.

[AcK + 50]

11 hours ago, Old-Ruffneck said:

I hope so, but I am just alittle bit skeptical...money drying up fairly fast.

Aside from money/capital, the sharp decline in oil rigs deployed also presents a very compelling evidence on the opposite side. We have seen some stability in the rig count in Dec as WTI prices have inched towards US$60 - but no reversal even. Not sure why E&P operators continue to idle rigs while planning to ramp up drilling/supply going into 2020??

[ceo_energemsier + 1,818]

The Eagle Ford shale is still attractive to lenders. Lonestar, an independent oil and gas company active in the South Texas play, announced this month its new 2020 borrowing base.

Working with Citibank N.A., Lonestar was provided with a borrowing base of $290 million.

Frank Bracken, Lonestar’s CEO, said that given the current conditions in the credit markets and the sub-market pricing assumptions that are currently being used in borrowing base calculations across the country, the company believes “that the reaffirmation of the company’s borrowing base is an endorsement of the quality of Lonestar’s asset base and the returns delivered by our capital program.”

In late 2019, Lonestar noted a record production increase, exceeding previous production

 

guidance by nearly 50 percent.

Production growth yielded a 30 percent improvement in the company's cash cost structure, Lonestar’s team told investors, including the fact that total cash costs have fallen from $22.76/Boe in 1Q19 to $16.09/Boe in 3Q19, giving Lonestar a more durable and competitive cost structure. “Most importantly,” the company said, “the underlying outperformance of our 2018 and 2019 completions means that we can achieve our 2020 production target of 17,000 to 18,000 Boe/d with fewer wells and less capital spending.”

 

[ceo_energemsier + 1,818]

WPX bolsters Delaware presence for $2.5B

 

 

By investing roughly $2.5 billion in the Delaware Basin, WPX Energy has added more than 1,500 new drilling locations, created greater cashflow certainty and sped up its 5-year plan. Tulsa-based WPX announced this week a transaction with Denver-based Felix Energy that will provide WPX with all of Felix’s assets in return for $900 million in cash and $1.6 billion in WPX stock. Post-closing, WPX also said it intends to implement a dividend of $0.10 per share. Consent by the Board of Directors at WPX was unanimous and the deal could be done in mid-2020.

The total asset package of Felix includes 1,500 gross undeveloped locations on the eastern portion of the basin along with production of roughly 60 MBoe/d (70 percent oil).

 

 

According to WPX, the deal was created based on the assumption of $50/b oil prices and the absence of any perceived development costs or yet-to-realized synergies of greater scale.

The Felix acreage position includes six productive benches. For Wolfcamp and Third Bone Springs, another 25 wells need to be drilled to hold production of the benches. Felix’s recent multi-well pads with at least 12 months of cumulative gross production are averaging approximately 240,000 barrels of oil per well, with pad averages ranging from 213,000 to 260,000 barrels of oil per well. Felix’s average lateral length is 9,200 feet per well.

EnCap Investments LP, a private equity company that founded Felix Energy, will add two directors to the WPX board following the transaction.

Doug Swanson, managing partner of EnCap, stated, “This is an exciting day for both Felix Energy and EnCap. Over the past four years, the Felix team has worked tirelessly to build what we consider to be a world-class Delaware Basin asset. Given the current market environment, we are strong believers in consolidation and feel that the Felix asset base is a clear strategic fit for WPX.”

Following the acquisition, cash flow per share, earnings per share, free cash flow per share, return on capital employed, and cash margins are all expected to increase, according to WPX.