Our Resource Play Timeline
How Debt Fueled Rapid Shale Growth And Allowed The Sector To Quickly Exhaust Its Viable Reserves...
The above graph compiles the dates for six prominent unconventional gas plays and five unconventional oil plays (and the associated gas from the Permian). Gas plays that reached greater than 3 BCF/D are included, with flags calling out the point at which each play surpassed 1 BCF/D. For oil plays, those that reached greater than 500 MBO/D output were included, with flags at the point that each play surpassed 100 MBO/D.
Several conclusions can be drawn from this timeline.
- 1) The shale sector remains dependent on the 'Big 3' plays of Wolfcamp, Bakken and Eagle Ford - plays that have been pursued for 10-20 years
- 2) No new unconventional resource plays have gained prominence in the last 6+ years
- 3) In the primary resource basins, the industry has thoroughly delineated, produced, consolidated, gained efficiencies, and pushed the boundaries to uneconomic Tier 3 rock
- 4) Of the 31+ unconventional resource plays the industry has identified and tested (chart below), only 10 retain material development today
Another crucial takeaway from this timeline is that prior to the adoption of widespread debt loading and financial engineering practices, early resource plays developed rather slowly, with minor production growth – also witnessed in total domestic oil and gas output. After the 2008 price collapse, however, the steady increase in horizontal drilling activity was a direct result of debt financing under quantitative easing.
Taking this into account, what does a recovery look like to the domestic industry? As demand returns, so should higher commodity prices – but outside of the remaining Tier 2/Tier 3 Permian, Williston & Gulf Coast locations remaining, where is additional CAPEX directed? From Dec ‘14-Dec ‘19, WTI averaged $53/bbl and Henry Hub averaged $2.78/mcf. Prices need to be considerably higher to sustainably pursue remaining Tier 2/3 fringe as easily obtained debt is not a viable option. Furthermore, what new unconventional plays can replace the Wolfcamp, Bakken and Eagle Ford?