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Salmon Run

Standard Oil of New Jersey, Humble Oil and Refining and Mobil all had significant operational history in the Permian Basin of West Texas before their successor, ExxonMobil.

Standard Oil of California, Unocal and Texaco, now Chevron, also have all had a long, stoic presence in the Permian Basin.

Both major, integrated companies amassed large positions totaling almost 4.0 MM acres of oil and gas leases, fee simple land and extensive mineral holdings in West Texas over the last 90 years. They both grew up in the Permian and went on to do great things around the world, including in the Middle East in the mid 1930's as part of the Seven Sisters relationship with Saudi Aramco.

Until just a few years ago and a great oil discovery off the coast of Guyana, Exxon had been "a bunch of no-oil-finding-sumbitches," according to an old, retired Exxon geologist friend of mine. Chevron, on the other hand has been finding oil and natural gas in places like Angola, Nigeria, the Shetland Islands, the Caspian Sea and has done really big natural gas work in the Carnarvon Basin off the west coast of Australia for decades.

Now, both American oil corporations have decided that the world is getting to be a big scary place, oil is harder to find and much more expensive to produce, and are retreating back to the place of their origin in West Texas. Like salmon swimming upriver to the place of their birth, Chevron and ExxonMobil will spawn many thousands of new, marginally profitable shale oil wells and ultimately die, someday, in the Permian Basin as two of the world's great hydrocarbon producers, their life cycles complete.

BOPCO block, New Mexico Permian

In January of 2017 ExxonMobil bought 275,000 acres of leases from the Bass Brothers in Fort Worth, operating under the name, BOPCO, for a whopping $6.6B, that's with a big 'ol 'B.' It was Rex Tillerson's last hooray before becoming Secretary of State. At the time that BOPCO block was producing approximately 18,000 BOEPD, 70% liquids, from a bunch of really lousy wells, and nobody really much understood what all the hubbub was about, particularly Exxon shareholders.

Exxon has had that BOPCO crap now for over two years and on the right is the realized oil production gain since 2017 from its HZ wells in the New Mexico portion of the Delaware Basin, presumed to be almost entirely from the BOPCO acquisition.

They have not done very well, doesn't look like it to me. If one uses the same data service as the one I've used on the right, it looks like they got a bad case of gas out there.

Most of Exxon's acreage is in the Midland Basin where wells are cheaper, it can actually sell associated gas and at least they have toilet water to frac with from Midland and Odessa metroplex if need be. And XOM doesn't really have to find anything, that's the good news. It just has to get to mass manufacturing wells, so many, in fact, that part of West Texas will look like this someday soon.

Big Blue is appeasing its shareholders for Delaware Basin transgressions by promising them $15 per BO break-evens and big volumes from the entire Permian Basin, some 1 MMBOEPD by 2025, in fact. They better hurry.

Post spawn Chinook on their last legs.

Chevron leasehold and fee in blue, Anadarko's block is in yellow

Mighty Chevron is on a terror in the Permian Basin, as everyone now knows, unless you've been vacationing on the moon the past month. It announced its intent to acquire 589,000 acres of Delaware Basin acreage from Anadarko last week, along with some other goodies around the world, for a cool $50B, that also with a big 'ol "B." [1]

Anadarko's acreage block in Loving, Reeves and Ward counties was right in the middle of Chevron's 'hood. Wells cost more out there in the Delaware, there is no place to put associated gas and flaring can be seen all the way from Pluto. Chevron has the bucks to sort out the recycling of produced water for frac'ing and can probably even find a way to make it rain more in West Texas. Hopefully. Frac source water is going to be a big problem in the Delaware, soon. Drought is a comin.'

At year end 2018 Anadarko had 128,000 BOPD from 773 HZ wells in the Delaware on its 589,000 acre block (one well per 765 acres) and suggests most of those wells are on track to make 410K BO EUR. At $60 WTI Cushing, 25% RI burdens and $10MM well costs (with all leasehold expenses included), that's skinny economics.[2]

A lot of ANALysts believe a large part of this Anadarko buy is focused on the development potential in the Permian Basin, but I don't know. I hope for Chevron sake its got a better plan. Elsewhere in the Delaware Basin CVX has over 1.4MM acres of really high net revenue leases and fee simple land that make it's well economics a lot better than any other operator working in the Permian Basin. If this Anadarko stuff had 25% royalty burdens, I can't say I understand its allure. Hopefully, in the end, CVX won't get a bucket of cold water thrown on it and change its mind.

Sockeye smolt

I have no vested interest in either Chevron nor ExxonMobil. I do in my country's long term energy future. So, I am actually good with majors taking over all that unconventional shaley-carbonate stuff out there in West Texas. It is essentially America's last remaining oil resource refuge and if all of our oil eggs have to be in the Permian Basin basket... its good to have the big boys carrying that basket. If there are more of these big acquisitions to be made in the Permian it will be big downstream end-users, with refineries to handle LTO, that will do the Shell.

This is all good for America. Chevron has a no flaring policy. Major integrated participation in the shale oil phenomena will result in a more fiscally disciplined approach to development, might reduce price volatility and help keep American oil IN America, where it belongs, not exported to Asia.


But shit has been known to happen in the oilfield.


[1] When Anadarko acquired Union Pacific Resources in 2000, over 7.4MM acres of fee simple land, with all minerals, came with the deal via land grants dated to Union Pacific as far back as the Abraham Lincoln administration. Most of this land is located in Wyoming and the Rocky Mountain area.

[2] By SEC filings Anadarko outspent revenue by $3.6B the last four years. At the time of the Chevron acquisition it was $15B in debt and paid something in the order of $800MM in interest in 2018. Its debt to equity ratio was 1.41 at the end of 2018. That sucks, big time. APC stock has declined 23% the past two years.

Its captain, Al Walker, in July of 2017 said this about his companies debt..."Wall Street has become an enabler that pushes companies to grow production at any cost, while punishing those that try to live within their means, Mr. Walker said, adding: “It’s kind of like going to AA. You know, we need a partner. We really need the investment community to show discipline.”

Walker's compensation for the Chevron acquistion of his company will be $65,000,000.00.

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