Posted on 02/08/2014 11:56:22 AM PST by ckilmer
Energy investors have effectively reached an earnings season tipping point, with the majors having told us about their fourth-quarter and full-year results and most of the independents still preparing to do so. While I obviously can't predict with absolute certainty the impending announcements from the likes of and Whiting Petroleum , they're likely to outstrip those that we've already received from ExxonMobil, Chevron , and Royal Dutch Shell .
As for the weaknesses displayed by the majors during both the past quarter and the entirety of 2013, it may very well be that increasing complexity -- both geographic and operational -- is hindering the growth of the big, integrated companies. That essentially was the message from Shell at earnings release time. Indeed, the company's new CEO, Ben van Beurden, was quoted by The Wall Street Journal as saying that Shell's big, expensive projects have caused it to become "convoluted," making it difficult to "set targets for production or cash flow."
Worse than stagnation
While Shell's results included a 71% year-over-year plunge in its fourth-quarter profit, ExxonMobil and Chevron hardly set the world afire. Exxon's quarterly earnings slid by 16% (27% for the year), but the real attention should be directed toward its balance sheet. Despite -- or perhaps because of -- yet another year of declining production, the company's capital spending for 2013 reached $42.5 billion, up 7% from 2012.
Those funds sat atop another $25.9 billion expended for dividends and share buybacks. One significant result of these layouts was corporate debt of $22.7 billion, or almost twice the year-earlier figure.
Similarly, declines in both domestic and international production at Chevron were partially responsible for a 32% cut in year-over-year fourth-quarter profit. And, like Exxon, the California-based company boosted its capital spending to nearly $42 billion, from just above $34 billion in 2012.
Smaller outlays, better results
But while the majors are writing big checks for large projects around the world -- including ExxonMobil's somewhat questionable array of ventures with Russia's Rosneft in the Kara and Black seas, the Gulf of Mexico, the U.S. mainland, and Canada -- most of the independents are more closely tied to North American plays. For instance, while EOG Resources conducts some international operations, it has benefited most from its activities in the Eagle Ford, the Bakken, and the Permian Basin.
Nary a quarter passes for which EOG doesn't announce the application of altered well spacing or new production techniques that have led to output increases and cost reductions for its U.S. plays. One result is a nearly 34% improvement in its share price during the past year. That compares with slightly more than a 3% decline for Chevron, a less than 2% improvement for ExxonMobil, and an improvement at Shell of below 5%.
An improved approach to fracking
EOG's advancements have been popping up for some time now. Back in 2006, drilling in the Bakken, it used fracking to produce oil, debunking those who thought the technology was only effective for natural gas. And more recently, the company has tweaked its fracking techniques in the liquids-prone shale plays. Quite simply, the company's engineers have decreased the length of the fracks, while increasing their circumference.
By thus staying closer to the well bore, the company (once a part of Enron) has been able to generate a happy combination of higher initial production rates and reduced decline rates. The obvious result is a jump in the estimated ultimate recovery from the wells.
New tricks don't remain secret in the oil field for long, however. And so EOG's advanced approach is being employed successfully by Whiting, a smaller -- less than $7 billion market capitalization to EOG's $47 billion -- producer that is also active in the Bakken. Other places where Whiting is turning drill bits to the right include the Permian Basin, the Denver-Julesburg Basin, and the Gulf Coast.
Capitalism works? The deuce you say!
And the cycle continues.
Little one grow fast in the booms.
Big ones survive in the bust, usually. And some of the big fish will eat up the little fish.
Nothing really new here. I’ve had both for clients. They typically have different priorities.
($3.28 to $3.49)
crony capitalism works
Interesting. Been dropping in FL for some weeks.
$3.11 today.
The real number, in fact the only number that really matters, is the Energy Return on Energy Invested (EROEI). We’re drilling marginally productive, short-lived wells at great expense using borrowed money. In the good ‘ol days, a well might yield a 100:1 EROEI. Modern fracked wells yield 10:1 or worse, and that at $90+/ bbl. If the price of oil drops, the picture gets ugly fast. Enjoy it while it lasts.
Always the case: in the East Texas field in 1931, the majors had to hire dependent contractors to drill the wells on their leases, because Headquarters was too slow to get things done, leaving local driller superintendents frustrated.
. We’re drilling marginally productive, short-lived wells
............
While the high flow rates for the horizontal wells are short lived, the low flow rates have a very long tail—longer than the vertical wells.
If the price of oil drops, the picture gets ugly fast. Enjoy it while it lasts.
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If the price of oil drops a lot of new drilling stops. and supply falls.
fracked oil supply is going to be much more sensitive to price than easy oil ever was.
As a result the cycles are going to be much shorter.
$2.94 here-down $.02 in the last few days...(NW Arkansas)
If our “friends” in Iraq follow-thru on their boast to “flood the world with oil”, domestic drilling will grind to a halt, pronto.
Yeah that’s what I thought for awhile until I noticed that next door in Iraq, the country is falling into civil war. that will slash their production. for the last several years they have been one of the few countries in the world besides the USA and canada that have seen significant rises in production. that will slow or reverse in the next couple years.
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