Update On Shell In The Permian -- August 30, 2016

I haven't followed Shell very closely for two reasons:

• to the best of my knowledge, it was never in the Bakken; and,
• when I last looked at the Permian, it was not highlighted as one of the top five operators in that basin.

Earlier today Don sent me a link to a short but very interesting article regarding Shell. Shell sold its position in the Gulf of Mexico:

In a deal that included $425 million in cash, Royal Dutch Shell said it sold off its entire stake in assets held in the U.S. waters of the Gulf of Mexico.

The article then goes on to say that Shell is going to concentrate where prospects are better.

I think there are several story lines here.

The first one I have is the most controversial and it's likely no one will agree with me, except for members of the alt-right conspiracy. It's not mentioned in the story, but I think the CEO gave some thought to liability risk in the GoM. He saw what the US government did to BP and that story is still not over. Trying to take all your money is one thing but drawing the "case" out Dickens-style is probably worse. At least when you've lost all your money, you can quit and move on. There was a hint of that concern in the linked article:

Shell this year closed down production briefly after observing sheen in the region. More than 2,000 barrels of oil were released into the U.S. waters of the Gulf of Mexico about 97 miles from the southern tip of Louisiana from operations the company's Glider oil field.

In the New Oxford English Dictionary, sheen is defined as a thin-layer of oil, that when found in US waters, will precede a multi-billion dollar settlement in favor of the government.
Adding a bit of support to that argument, note the first paragraph again:

In a deal that included $425 million in cash, Royal Dutch Shell said it sold off its entire stake in assets held in the U.S. waters of the Gulf of Mexico.

At the end of the article, this paragraph:

Shell said it maintained a strong portfolio of assets in the Gulf of Mexico and plans are to increase output from established reservoirs. The Brutus/Glider assets combine for about 25,000 barrels of oil equivalent in production per day, or less than 5 percent of its total output.

So, there you have it. Shell departs the US GOM and remains in the GOM, but outside of US jurisdiction.  [Note: to keep comments to a minimum, I focused on an actual spill, risk, sheen -- I did not comment on all the US regulatory headwinds operators face in the Gulf.

A second story line:

This year, the company said it was leaving oil and gas operations in as many as 10 countries, while focusing more heavily on gas-rich Australia and shale opportunities in the United States.

Throughout the blog, I've posted a number of links to articles highlighting plays were Shell is leaving, including the Arctic. 

The third story, also in that paragraph: to focus on shale opportunities in the United States. Shale plays in the US were not identified by name. In the very first article linked at this post, it was noted that Shell was not one of the top five operators in the Permian. Right now, of the three top shale plays in the US (Bakken, Eagle Ford, and the Permian), the Permian is, by far, getting most of the attention. One can add Oklahoma's STACK/SCOOP, I suppose.

There's a fourth story line, but that came as a result of the article linked below. The fourth story line: the majors were slow to catch on to onshore fracking.

When searching my own blog, I don't see (m)any references to Shell and the Permian. But through google, I found this story, from Rigzone, June 21, 2016 -- just a couple of months ago, with these data points:

• Shell acquired its Permian acreage from Chesapeake Energy in 2012
• the company believes it position in the Delaware is the best of any operator there, in terms of size and rock quality
• Shell holds 300,000 net acres in the Delaware through a joint venture with Anadarko Petroleum
• 5,000 future wells identified
• estimates: 2 billion boe
• three plays in the Wolfcamp: 
• the well-developed Bone Spring III
• the Avalon
• the Bone Spring II
• sees multiple benches in the Bone Spring III
• focus: longer laterals and more wells / pad
• EURs: increased by 130% over past two years; estimates EURs will increase another 20% this year
• breakeven price: $35 - $50 / bbl
• improved performance due to:
• fracking long laterals: to date, Shell has drilled two 10,000-foot lateral
• sweet spot selection
• eliminating (selling) non-core acreage drilling
• the company wants to drill laterals as long as possible without adding significant cost (the drilling is not the long cash-pole in the teepee; it's the fracking)
• asset swapping is how operators are maximizing operations now: companies swapping Permian acreage -- Shell, Anadarko, EOG