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Shell works to simplify organization to compete with independents

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By Mella McEwen [email protected]: 22 June 2016

Too big. Too rigid. Not nimble enough.

Those are reasons why integrated oil companies could have a difficult time competing with independents in the unconventional shale plays that have led to a resurgence in the nation’s oil and gas industry.

Royal Dutch Shell, however, disagrees with that reasoning and this week held an event to reaffirm its commitment to the shales business, including its holdings in the Permian Basin.

Shell officials discussed how its recent $70 billion acquisition of the BG Group has impacted its outlook. The event was a mixer at Shell’s Drilling Automation & Remote Technology (DART) Center located on its Houston campus and was webcast and available by telephone.

“We have substantial choices in a post-BG world,” said Greg Guidry, executive vice president, unconventionals. The acquisition brought Shell a major position in deep waters offshore Brazil and in liquefied natural gas projects in North America. Also acquired were BG holdings in the Haynesville that are operated by Exco Resources and some legacy acreage in the Appalachian Mountains that are currently inactive.

“We can activate our shale program when the right price signals are there.,” he said. “Right now we still have an active shale program where we spend $2 (billion) to $2.5 billion a year.”

Guidry said the company sees its North American shale position — primarily in the Permian, the Marcellus-Utica and in Western Canada’s Montney and Duvernay shales — as future growth priorities that will see substantial spending in 2020 and beyond.

Shell gained a significant position in the Permian Basin with its 2012 acquisition of Chesapeake Energy’s holdings in the Delaware Basin. The acquisition included the South Rankin Highway office that currently houses 50 employees. Across the Permian, Shell has 200 to 300 — employees and contractors.

“We feel we have the best position in the Delaware,” said Bruce Palfreyman, general manager, Permian Basin. “Shell now has 300,000 net acres with over 5,000 possible well locations. At least 85 percent of its acreage is considered core acreage and about 75 percent have break-even points between $35 and $50 oil.

“We’ve spent the last three years maturing and derisking a lot of that acreage,” Palfreyman said.

He said the company sees multiple plays on its acreage: at least three Wolfcamp plays, potential in the Bone Spring/Avalon Shale plays in the Second and Third Bone Spring formations.

In addition to high-grading its portfolio, Palfreyman said Shell has also done a lot of swaps of acreage as it looks to develop its holdings through longer horizontal laterals and multipad drilling.

He estimated Shell’s Delaware acreage has 2 billion barrels, and though activity has been slow amid low oil prices, the company has increased its Expected Ultimate Recovery reserves 130 percent since 2013 and expects to increase that another 20 percent this year.

That growth has come even as Shell has halved its footprint in its shale holdings since 2013, according to Guidry.

“We have half the acreage, we’re in half the plays, we have half the assets. Yet we have a larger reserve volume than we’ve ever had,” he said.

He attributed that growth to the company’s focus on improving operational performance and capital efficiency as the company began a major overhaul of its shale business.

He said that the company has focused on big wells — wells with more than 1,000 barrels of oil equivalent per day in initial potentials.

“If you’re not in that window, you don’t stand a chance” of being economic in shale exploration and acquisition, he said. In 2013, 20 percent of Shell’s wells generated that large an initial potential; today 100 percent of its exploration and acquisition portfolio averages 1,000 barrels or more over the first 30 days of production.

“We’ve also driven down costs. Direct overhead cost-per-well is down 76 percent since 2013. Our organization is also half the size,” Guidry said, estimating 2,000 full-time equivalent jobs have been cut since 2013.

“We’ve also simplified our organization quite a bit and that’s contributed to lower costs. We are now a leaner, simpler, much more nimble organization,” Guidry said.

Palfreyman said the company’s current outlook for the Permian is for continued consolidation. Operators will continue to drill longer laterals, and Palfreyman said he’s been told there currently are 1,000 drilled-uncompleted wells in the Permian.

Guidry expressed pride in how the company helped bring about a road safety coalition in the Permian Basin that has drawn the participation of other companies, the Texas Department of Transportation, local governments and first responders and even service companies that are part of Shell’s supply chain. Activities in the eight months the coalition has been formed include helping prioritize signage and road layout. Guidry said road safety is important not just to oil field workers but the public at large.

© 2016 MRT.com. All rights reserved.

Read more: Shell works to simplify organization to compete with independents – MRT.com: Oil & Gas http://www.mrt.com/business/oil/article_7833cb2e-38d0-11e6-8b48-03084feb0a8a.html#ixzz4CO1WmCyv

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