Shale oil rush 3 keys to success
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"Shale Oil Rush - 3 Keys to Success" A strategic approach to benefit from the shale oil revolution
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Shale oil rush 3 keys to success
- 1. SHALE OIL RUSH “3 KEYS TO SUCCESS”
- 2. SHALE OIL RUSH – “3 KEYS TO SUCCESS” 1) -‐ Understand HOW Shale Oil is DIFFERENT • • • • • • • • • • • • • Enabling technologies, horizontal drilling & fracking: novel, evolving, big learnings poten6al Shale oil is s6ll a very young & fragmented industry with many new-‐oilcos and lower business entry barriers than mining or conven6onal oil Extensive services infrastructure is essen6al, transporta6on infrastructure less cri6cal DEVEX depends much on well-‐construc6on capacity u6liza6on, less on global macro factors Explosive growth in the USA from 0.5 to 3.0 MMbopd over last 5 years, and con6nuing Above ground factors so far impede global expansion, but Vaca Muerta, Bazhenov promising Shale oil is scalable, repeatable, module-‐able, itera6on-‐able Much shorter project lead 6mes enabled via field pilots High well IRRs & margins and early cash returns allow faster capital recycling, larger opportunity capture and faster growth Mature oilcos key strengths -‐ FEL/modeling, work flows, finances -‐ no compe66ve advantage Natural hedge against oil price risk during development, as commodi6zed US onshore drilling day rates and frac cost inversely correlated to well margins Reserves booking greatly facilitated via well type curves, analogues, legacy wells, repeatability Need to pay close aTen6on to capital markets (reserves, PR) and capital efficiency (alloca6on, recycling, OCC, tax), in order to fast-‐track growth Page 2
- 3. SHALE OIL RUSH – “3 KEYS TO SUCCESS” 2) – Capitalize on LATEST technical & financial PROGRESS • • • • • • • • “More efficient wells”: faster wells, longer and op6mally placed laterals, more frac stages, ideal perfs placement, larger fracs and beTer frac efficiency, higher well up6me and op6mized A/L, downhole monitoring and drainage control “Manufacturing approach”: pad drilling, rig walkers, zipper fracs, acreage uni6za6on, supply logis6cs, spud-‐to-‐POP dura6on, use of natural gas, TPS baTeries Focus is broadening to “resource maximiza6on”: lateral downspacing to ≈50 acres, frac stage op6miza6on to ≈200 a, add deeper and shallower horizons NPVs discounted with higher OCC, not WACC, to include benefits of bigger opport’y capture Well emphasis on IP, less on EUR, as result of using the higher OCC Early reserves booking allows debt funding and, together with efficient working capital management, is impera6ve for high NPAT results Where cheap and possible, overseas acreage gedng secured for possible future development Rapid growth via acquisi6ons and virtuous-‐cycle resource development possible, but keen focus on capital markets and capital alloca6on & efficiency necessary Page 3
- 4. SHALE OIL RUSH – “3 KEYS TO SUCCESS” 3) – Foresee FUTURE TRENDS & play it SMART • Large scope for progress: ver6cal placement of laterals, frac stages op6miza6on, stress field examina6on, resource drainage improvements, frac spread simplifica6on, drill & frac fluids recycling, frac propaga6on control, downhole monitoring -‐ most gains will spread quickly • Wave of consolida6on will eliminate the squaTers and the slower and less advanced players • Producing shale oil: -‐ can be securi6zed, offering exposure to long-‐term infla6on & oil prices -‐ may be set up as MLPs, linking tax benefits with liquidity of traded secs • Securi6za6on or spin off into MLPs are efficient liquidity measures for shale oil • Mature onshore shale oil offers great scope to add value via range of OPEX ini6a6ves • In the long run, 2 polarized owners of shale oil resources for early life and late life assets: 1. Shale Oil Developer – aggressive, innova6ve, savvy, priv equity, capital focus, buy-‐to-‐sell 2. O&M Manager – diligent finisher, OPEX & margin tweaker, publicly listed, buy-‐to-‐hold • Oil price risk – work confidently with the natural hedge during development phase • Alignments – private equity during development, services companies during O&M phase • People – entrepreneurs during development, margin tweakers during O&M phase • Timing – entry NOW for shale oil developers; O&M Managers wait for consolida6on • Exit -‐ important for shale oil developers not to miss exit and move to the next dvmnt • Shale gas – poses significant risk to DEVEX if it takes off, since it uses the same rigs & frac fleet Page 4