Update On ExxonMobil, The Permian, Natural Gas, And Petrochemical Focus -- January 29, 2017

This is an incredibly good article on the state of US shale from a global perspective. Although the writer focuses on ExxonMobil and the Permian, the writer provides a lot of insight for US shale.

Disclaimer: this is not an investment site.

The article comes from ICIS Chemical Business. I was alerted to it through a reader who caught it at an investing message board.

It should be noted that this article is very, very good, but most (if not all) of it has been previously reported in more detail by RBN Energy. The writer seems to suggest that ExxonMobil had the Permian figured out some time ago, but to me, it seems, ExxonMobil was "johnny-come-late" when it comes to the Permian. The writer does not address the issue why EXOM shares have done quite poorly when compared to its peers. 

Data points:

Background

• ExxonMobil and Wolfcamp shale formation
• even as far back as ten years ago, the Permian Basin was struggling to find workers to fill the 2,000 odd jobs it had open
• Wolfcamp now a new play due to hybrid technology: vertical wells, horizontal drilling, and fracking
• the Permian withstood the 2014 oil price crash the best
• higher productivity per well (not mentioned: generally a bit more "gassy" than the Bakken, but not nearly as "gassy" as the Eagle Ford)
• chief operators in the Permain had better access to cash
• mergers and acquisitions are being noted
• Wood Mackenzie estimates the Permian has attracted 14% of global deal flow in 2016

ExxonMobil

• slowly but surely carved out a chunk of the Permian
• beginning in early 2014, ExxonMobil has signed five agreements that just about doubled its operations in the Wolfcamp
• late in 2016, it created a crude oil logistics venture with Sunoco: Permian Express Partners (previously discussed) 
• recently, ExxonMobil had acquired 250,000 acres in New Mexico's Delaware Basin from the Bass Family of Fort Worth,TX (previously reported)

Well completion costs

• ExxonMobil  has cut drilling and completion costs by 30 to 40 percent from 2014 to 2015
• break-even at an oil price of $40/bbl (compare to $30/bbl in some spots in the Bakken) 

Production

• ExxonMobil has been looking at increasing the amount of production per rig, per well (regardless whether it is in the Permian or in the Bakken)

Investment paying off

• project start-ups helped offset the natural decline in oil fields; the setback from Canadian wildfires; and, downtime in Nigeria
• ExxonMobil "far ahead of its peers" in squeezing more earnings out of every dollar of capital it employs
• ROACE: return on average capital employed: higher than CHevron, Shell, Total, or BP during 2011-2015
• ExxonMobil had an industry-leading ROACE of 7.9% in 2015
• [the writer does not answer the question: if ExxonMobil is the leader in ROACE, why does XOM share performance not reflect that? Answer: share price in the oil industry also related to reserve replacement and ExxonMobile has not been doing well of later; that explains why it doubled wdown in the Permian; reserves in the Permian seem to have no limits]
• the writer cautions investors to look at ROACE when ExxonMobil published its 2016 figures

Positioning itself for the future

• a focus on natural gas, though historically ExxonMobil is all about crude oil
• petrochemicals: has introduced a major expansion in Texas including a world-scale ethan steam cracker and associated polyethylene facilities
• joint-venture partner: SABIC
• 1.8 million tonnes of ethylene per year near Corpus Christi
• the site will also include a monoethylene glycol (MEG) unit and two polyethylene (PE) units
• [SABIC: Saudi Arabia; previously discussed]
• another ethane-fed cracker with a capacity of 1.5 million tonnes per  year is due to start up this year at its Baytown petrochemical complex near Housotn
• at nearby Mont Belvieu, it plans to add 1.3 million tonnes of PE capacity
• building another PE unit of 650,000 tonnes per year at Beaumont
• Mont Belvieu and Beumont projects combined will increase ExxonMobil's US PE production by 40%; making Texas the focal point of PE supply for the company

Reminder

• the Permian, being more "gassy" fits into the ExxonMobil focus on petrochemicals very, very well