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Impact of Shale Development on the Global and Regional

Oil Outlook

Dr. Ganesh Thakur, PhD, MBA, NAE


• GLOBAL SHALE OIL OUTLOOK

• IMPACT OF US SHALE ON THE GLOBAL MARKET

• QUALITY OF OIL

• PRODUCTION DECLINE BEHAVIOR

• COST REDUCTION

• PERMIAN BASIN TIGHT OIL

• OIL PRICE FORECAST ?

OUTLINE (7 THINGS TO REMEMBER)

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CONVENTIONAL RESERVOIRS:Small volumes that are easier

to develop

UNCONVENTIONAL:Large volumes more difficult

to develop

HIG

HER

OIL

/GAS

PRI

CE

IMPR

OVE

D T

ECH

NO

LOGY

CONVENTIONAL: Harder to find…easier to produceUNCONVENTIONAL: Easier to find…harder to produce

HIGH-MEDIUMQUALITY

LOW PERMOIL

TIGHT GASSANDS

OIL SANDS

OIL SHALECOALBED METHANE

HEAVYOIL

GAS HYDRATES

GAS SHALE

DEEPWATER

EXTRAHEAVY OIL

Modified after Holditch, Masters.


GLOBAL SHALE OIL RESERVES

4

1 m3 = 6.29 bbl


OBSERVATIONS• Shale oil (light tight

oil) emerging as significant, relatively low cost resource in the US

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GLOBAL SHALE OIL OUTLOOKU.S.

MEXICO


• By 2020 → shale oil - 9% of global production.

• By 2035 → Global shale oil production to 14 MM BOPD 12% of the world's oil supply. Falling prices - change in balance

of world's energy powers (Russia and Middle East).

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PROJECTIONS

IMPACT OF US SHALE OIL ON GLOBAL MARKET

MM BOPD


UNCONVENTIONAL OIL & GAS

• Gas production from U/C: Increased from

20.8 to 52 Bcf/D during 2006-16. About half of

NA’s supply.

7

• Oil production in NA: Growing and

affecting world oil supply. Capex in U/C oil

and gas wells = $100 billion in NA alone (2016).

• Bakken production: 1.2 MM BOPD

(2014) 0.90 MM BOPD

(2016)


GLOBAL SHALE OIL OUTLOOK

OBSERVATIONS

• Benefits of oil price reductions:

• Net importers like India and Japan -GDP boosted by 4 -7% by 2035

• US, China, Eurozone and UK by 2 -5% of GDP.

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• Major oil exporters:

• Russia and Middle East -decreasing trade balances by 4 -10% of GDP in LT if no shale development.

Source: Pwc Shale oil: the next energy revolution


TECHNOLOGY• NA companies

continue to innovate.

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• U.S. foresight of states like ND not to overregulate industry

• U.S. has significantly advanced development of shale: Deployment of new technology (D&C,

limited use of water, and environmental friendly)

Extensive geological mapping




• TALENTED WORKFORCE Hiring frac experts Stabilizing the workforce Keeping value creators and

innovators

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• IMPROVED TECHNOLOGIES Using more proppant Adding more sand Larger treatment with more

fluid volumes Reducing cluster spacing

• REDUCED COSTS Lowered service

provider rates Building frac fleets

and buying sand mines

Source: OGJ – IHS CERA Week US Oil Resilience – A Product of Innovation

INNOVATION



PROJECTIONS

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• U.S. shale oil production expected to: Dip 10 - 15% from 2015 levels Continue to slip in 2017 before rebounding 10%

in 2018 (source: U.S. EIA)


• Production is to increase: 1 to 2 MM BOPD from 2012

to 2020 and 3 MM BOPD by 2025• This increase hardly offsets

normal annual decline rate of 3 -5% in U.S. conventional oil production

1

2

3

2012 2020 2025

PROJECTIONS




The Open Market: Shale, Crude WTI and BrentLighter, sweeter crude prices better in an international market and overtakes North Sea Brent

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WTI vs. SHALE• WTI - lower in

sulfur and higher in API than Brent

• Bakken and Eagle Ford crudes are lighter than WTI Will fetch higher

prices in the global market.



WTI vs SHALE OIL

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• WTI• Sweet, sulfur content = .24 %• Light , 𝑨𝑨𝑨𝑨𝑨𝑨 𝒈𝒈𝒈𝒈𝒈𝒈𝒈𝒈𝒈𝒈𝒈𝒈𝒈𝒈 = 𝟑𝟑𝟑𝟑

• SHALE• Sweet, sulfur content = 0.18% • Light, 𝑨𝑨𝑨𝑨𝑨𝑨 𝒈𝒈𝒈𝒈𝒈𝒈𝒈𝒈𝒈𝒈𝒈𝒈𝒈𝒈 = 𝟒𝟒𝟑𝟑.𝟖𝟖



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Source: Wood Mackenzie, Business Insider, U.S. Global Investors

ECONOMICS• D&C costs for a horizontal well range from $4 to 6 MM: Wells typically have steep decline - first year of 70 - 90%. A break-even oil price was $55-88/barrel and is now $30-

65/barrel

Suggests that most shale oil plays are profitable at current oil price levels.


5441

62

41

79

65

88

48

80

30

55

31

2014 Break Even Price $USbbl 2016 Break Even Price $USbbl

Select Shale Oil Plays Average Break Even Costs ($USbbl)(Weighted average break-even cost WTI US$bbl for select formations)



U.S. SHALE INDUSTRY NEEDS $55-60 OIL TO KEEP PRODUCTION FLAT

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U.S

. Sha

le O

il an

d Co

nden

sate

Pro

duct

ion

(MM

Bbl/

d)

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WOLFCAMP DEPOSITIONAL MODEL – MIDLAND BASIN


PERMIAN BASIN MAP AND PRODUCTION

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• Type curve for Wolfcamp shale oil production in Reeves county

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PERMIAN WOLFCAMP PRODUCTION PERFORMANCE

Source: http://www.drillnomics.com/wp-content/uploads/2016/01/TX-figure-12.png & http://www.uky.edu/KGS/emsweb/devsh/production/

6000

3000

4000

Decline data for ID: 114259

2000

1000

Rate

s (M

cf)

Time (months)

5000 Exponential decline: Qi=3093.86, Di=-1.3454%, r2=0.8212

0 10 20 30 40 50 60 70 80 90

Years

BOPD

2k

1k800600

400

200

1008060

40

20

1086

1 2 3 4 5 6 7 8


TYPICAL FRAC JOB – DEADWOOD FIELD, GLASSROCK CO., TX

Source: Apache


• SIGNIFICANT SHALE OIL RESERVES

• HIGH QUALITY OIL

• PRODUCTION DECLINE BEHAVIOR

• COST REDUCTION

• NEED $55 – 60 PER BBL OIL PRICE TO MAINTAIN PRODUCTION

• PERMIAN BASIN TIGHT OIL – A MAJOR PLAYER

• OIL PRICE FORECAST ??

SUMMARY (7 THINGS TO REMEMBER)

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