November 23, 2020

US Tight Oil Producers Update

Stratas Advisors

This is an excerpt of our Top Shale Operators 2020Q3 Update which is available to members of Enhanced Shale Service.
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E&P companies typically have these following revenue sources:

  1. Selling their own produced hydrocarbons;
  2. Buying and selling 3rd party hydrocarbons due to operation needs;
  3. Providing other services, e.g. well services by well services unit of the company or 3rd party hydrocarbon processing using proprietary facilities;
  4. Financial instruments or investing; and
  5. Asset dispositions.

However, for the purpose of this report, which is to examine the US tight oil business condition, we choose to only show the revenue from item 1, which is revenue from selling an E&P company's own produced hydrocarbons. Below is a table which summarizes the findings from 2020 Q3 10-Q forms of selected companies. Please note for some companies there is a small discrepancy between sum of revenue from sales of hydrocarbons and the last row due to some hydrocarbons sales not grouped into the three main categories of hydrocarbons. The following table illustrates such core revenue for the first three quarters of 2020.

EOG Marathon Devon Ovintiv Concho Continental Pioneer Diamondback
Revenue from sales of hydrocarbons (million USD) 5,049 2,275 1,909 2,577 2,230 1,739 2,617 2,002
Barrel of Oil Equivalent Volume (mboed) 738 396 333 539 322 287 368 302
Crude Oil and Condensate Volumes (MBbld) 397 197 153 200 203 155 213 183
Natural Gas Liquids Volumes (MBbld) 134 71 78 86 n/a n/a 86 60
Natural Gas Volumes (MMcfd) 1,238 768 609 1,520 711 791 419 353
Average Crude Oil and Condensate Sales Price ($/Bbl) 37.44 34.22 35.00 34.55 36.58 33.71 36.05 35.69
Average Natural Gas Liquids Sales Price ($/Bbl) 11.95 8.42 10.38 8.72 n/a n/a 14.64 9.56
Average Natural Gas Sales Price ($/Mcf) 1.58 1.01 1.36 1.69 1.05 0.72 1.50 0.63
Sales reveune from crude oil and condensate (million USD) 4,061 1,837 1,462 1,740 2,027 1,426 2,096 1,785
Sales reveune from NGL (million USD) 438 164 221 189 n/a n/a 343 156
Sales reveune from natural gas (million USD) 534 212 226 647 203 155 171 61
Sum of sales of hydrocarbons (million USD) 5,033 2,213 1,909 2,577 2,230 1,582 2,610 2,002

Similarly, for the cost side, we include only costs related to generating revenue from selling an E&P company's own produced hydrocarbons, which excludes costs related to item 2 to 5 of revenue sources above. On the capital expenditures side, though strictly speaking not all of the CAPEX is used for creating revenue by selling an E&P company's own produced hydrocarbons, the vast majority of the CAPEX for major tight oil and shale gas focused operators is used in drilling and development of wells, building or acquiring facilities to help produce and transport the produced hydrocarbons, acreage and property acquisitions to facilitate the drilling and development of wells, so we include all the CAPEX here as the cost of carrying on core business operations of these 8 E&P companies. 

The following table is a simple calculation by subtracting total OPEX and CAPEX from the core revenue in the first table. And the result is that 7 out of the 8 major US tight oil producers did not make a profit from their core operations during the first three quarters of 2020. Please note that the average sales price of oil is around $35.5/bbl and $1.19/mcf for gas during the period for these selected operators and the pricing environment should be better in 2020 Q4.

EOG Marathon Devon Ovintiv Concho Continental Pioneer Diamondback
Core Operation Profit(million USD)
Revenue - OPEX - CAPEX (527) (16) (335) (899) (56) (161) 132 (427)

 

Sample Operator Update

Devon Energy

On September 26, 2020, Devon Energy entered into the Merger Agreement, providing for an all-stock merger of equals with WPX Energy. The merger, if successfully executed, will enhance Devon's position in the Delaware Basin. The $490 million sale of Barnett assets closed on October 1, 2020 marked the official exit of Devon from the Barnett shale gas play.

On the operation side, barrel of oil equivalent production volume for first three quarters of 2020 averages at 333 mboe/day, which is higher than 2019 average of 327 mboe/day. With estimated 2020 CAPEX of $1.1 billion, Devon is expected to complete 165 wells this year compared to 208 wells under $1.91 billion CAPEX in 2019. It is worth noting that Devon's average well CAPEX spending comes down from $9.18 million in 2019 to the estimated $6.67 million in 2020, which is an impressive 27% drop.

Devon is increasingly shifting their development focus to the Delaware Basin, where the new well productivity is much better than their other wells in Niobrara or Eagle Ford. Under Stratas' $48/bbl WTI pricing forecast for 2021, we believe Devon will continue to focus their drilling and completion in the Delaware Basin next year to achieve better cashflow balance while maintaining 2020 production volume.

The following chart shows Devon's US well performance grouped by well's first producing years. It appears that the well performance improved a lot in 2018 and continued to improve since then. In fact, the average 6 month cumulative market BOE volume is 116.7 mboe, 130.5 mboe and 138.9 mboe for wells that started producing in 2018, 2019 and 2020.


This is an excerpt of our Top Shale Operators 2020Q3 Update which is available to members of Enhanced Shale Service.
Not a subscriber? Create an account or contact Haofeng Lin at +1-206-294-6409 for more information.

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