Peak Shale Oil -- April 20, 2019

April 20, 2019: could this be the next high-profile Permian takeover? From the linked article:

Oil equities are under-valued at present by thirty or forty percent, taking the recent performance of the XOP index as an example, in relation to the price of oil. From the Dec. 24th, 2018 low, the XOP has regained about 30% of its pre-crash level, while oil has nearly doubled. Anadarko makes up about 2% of the XOP.

I posted this earlier, but am now looking at this article again with respect to these paragraphs:

We have been inundated with theories about shale peak-ing out in recent times. You've may have read them... the ones by Martenson and Berman stand out in particular. In this one, and in others very cogent arguments have been made, that growth trajectory of shale plays is in decline due to poorer rock quality than in the past. Some, like Jim Chanos posit a very dark interpretation of shale results so far, that's it all been a hoax. The words "Ponzi Scheme" are used frequently by the doom sayers.

It is not my intention to challenge any of these pundits squarely today. They may very well be right, time will tell. What I do want to address in this article is an element of market activity being ignored by the "doom crowd." The clever arguments put forward for shale slipping (crashing?) into decline, have managed to ignore one simple fact.
The shale-doom crowd chooses to ignore the obvious, and frankly, the most compelling pro-argument for shale that exists. Big Oil is committing resources to shale in droves.

Companies are falling over each other in the attempt to land big "Shale" fish, like Anadarko. And, in so doing have laid out ambitious growth plans for this resource. BP, (BP), ExxonMobil, (XOM), and now Chevron. What are they telling us by voting for shale with their capex dollars?

It's simple really. They are saying that their geophysical teams-which, let's acknowledge are the best in the business, have told them that with scale, they can wring more oil and gas for less money than any other equivalent investment.

What scale brings is a low base cost of production, which when combined with the high technology these companies can bring to bear on a project, turns into profits and free cash flow.

Here is what, Michael Wirth the chairman, of what many people regard as the smartest, best run oil operator in the business- Chevron, said regarding this transaction in a recent interview:

"This deal enables us to compete in any oil price environment, produce synergies from the combination of the two companies, and be accretive to earnings in the first year."

A point worth making, and one made by Mr. Wirth, was that it's not only Anadarko's shale acreage drawing their interest, but the global footprint of this company aligning so closely with theirs in deepwater and international. But make no mistake, Anadarko's shale acreage is the linchpin in this deal.