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The Spawn

Five years ago I wrote something about Exxon and Chevron returning to the Permian Basin in which they both were born, like salmon swimming upriver to spawn. I called the piece, Salmon Run, and you can read it, here.

A couple of years later I followed that piece up with something called, Zombie Fish, and you can read that, here. At the time of the 2nd piece I was not very impressed with Exxon's promises.

Look, everybody loves, or hates, Exxon and Chevron; its un-American NOT to. They make lots of money (too much to avoid a windfall profits tax, it seems), pay good dividends, both are promising stuff about "carbon capture" that the climate change folks love and both seem to have found Jesus and don't flare gas anymore in the Permian Basin. On the other hand, what can go wrong when you make more profit than the combined GDP of Ecuador, Peru and Columbia, lie about EUR's and proven reserves you book with the SEC? Somes is gonna love you, others is gonna hate your innards.

Exxon and Chevron both told America in 2016 that they were going back home to the Permian to send little boys like EOG and Pioneer to the house to their mama's and show America how to mass manufacture Wolfcamp wells. Exxon, in fact, said it was going to be producing 1,000,000 BOEPD from the Permian Basin by 2024. Greater efficiency and all that dung heap.

Exxon has been backing up on that promise now for three years and the march to 1 MM BOEPD in the Permian has now been delayed, again, until 2028. Just this week Exxon reported it closed the year 2022 with 560,000 BOEPD of Permian production. Thru November 2022 Exxon's oil and condensate production in the Permian was 317,000 BOPD (TRRC), the rest is 'E's' in BOE.

For all the rhetoric about research and development, new technology, smarter people, cornering the service market and efficiency of scale, both Exxon and Chevron have sort of made meatheads out of themselves, at least in the Delaware. Neither can stop gassy oil wells from becoming oily gas wells and with regards to tight oil decline, not even Exxon can mess with Mother Nature.

Both little boys, EOG and Pioneer, in 2022 kicked Exxon and Chevron's integrated asses, by the way. More production, better wells. Exxon is in the Permian top 10 at 6 or 7; Chevron I don't know.

This, above, may be the reason Chevron has announced its going to spend $75 big ones on stock buybacks; it can't make any money for its shareholders in the Delaware Basin drilling this kind of shit.

The entire Permian Basin is getting gassier by the minute and the Delaware Basin by the second. Natural gas prices are in the toilet, again, and soon to be flushed to the septic tank. In 2023 WaHa spot gas prices are going to look like sound wave. If half your revenue stream is associated gas, and the price runs negative $1 to positive $3, who wants to drill THAT kind of stuff ?!

Exxon's well quality in the Delaware Basin based on average production profiles for 2022 is about two times better than Chevron's, if you care about that stuff. Exxon's associated gas volumes in the same basin are going thru the roof, however, most of that coming from a very gassy Eddy County. I look for Exxon to start buying right of way for the Permian Canal in 2024; it can then export LNG from Fort Stockton and get rid of produced water at the same time.

All that swimming against the current, squeezing thru riffle's, getting stuck in back eddies, jumping waterfalls, trying to not to get snagged with a treble hook by some asshole from Maine or eaten by a freakin' bear is hard ass, exhausting work. It takes great passion to want to get back home before you die. Then, just like's over.


Well productivity is sort of a vague, confusing metric that I use too often myself to prove a point I wish to make about coming Permian scarcity. The time frame in which "productivity" is measured is subjective and most analysts or cheerleaders pick IP6, 12 or 24 month numbers because it looks better, it looks like wells are just as good today as they were six years ago. Operators have a lot to do with how a well "looks" coming out the chute... from how they design the frac to how they flow that well back. Are they gutting the damn thing for bucks, or are they managing BHP with chokes for longevity? I choose Door No. 1:

But the further out into a well's life we look, the worse these Permian wells seem to be getting. Post IP24, decline is steepening and once wells get down to making <60 BOPD, which by the way appeat to be over half the horizontal wells IN the Permian, decline rates are accelerating to upwards of 13% per year.

So, if you are interested in knowing about your countries oil future, don't be fooled by the well "productivity" metric. On a liquids basis they ARE getting worse, whatever the time frame, and that is a precursor to what really matters and that is EUR's. As Berman and Enverus have found, below, EUR's are going down in the Permian. THAT'S what matters to our nation's future and declining EUR's are definitely no bueno por nada.

Disclaimer: the author does not own any stock in these two companies, is not an analyst, nor a financial advisor, just a dumb-ass roughneck from Flatonia worried about his country's long term oil and gas future.


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