Shale vs Big Exploration

 

Intense rivalry for resources between unconventional and conventional teams continues to fuel the debate over which opportunity type is superior.

This cannot be settled with easy comparisons because there is no such thing as a 'typical' shale or an 'average' deepwater discovery, yet there is much to be learned from the economic record of the most significant recent unconventional and conventional asset investments.

In our latest white paper for download today, we have assessed the contribution unconventionals have made to E&P portfolios and the strategic rationale for unconventional resources by reviewing 300 shale and deepwater assets captured by companies covered in our Corporate Service from 2009-2013.  There are several themes to consider.

In terms of large-scale resource potential, unconventionals continue to surpass expectations. The new Shale Gas/Tight Oil (SG/TO) projects represent  approximately 54 billion boe in commercial and technical resource potential, with deepwater projects providing around half this resource base.

Another major advantage for unconventional plays is that their large acreage footprints can provide decades of drilling inventory, giving companies line of sight across a long horizon of growth. Within our set of assets, only 15% of deepwater projects provide two or more decades of investment while multi-decades of drilling is nearly twice as common within SG/TO at 27%.

Returns are highly variable across acreage and projects, regardless of resource type, so it is harder to say whether one or the other is more profitable. 

Our analysis reveals several high-return SG/TO positions that represent the best 'sweet spots' which are receiving a disproportionately large share of investment. There are many high-return deepwater projects too but these are typically smaller tie-back fields that do not represent big material investment opportunities.

Unconventional assets usually compare favourably in terms of fast production growth, which can offset capital requirements but are less robust in terms of value. With lower revenues and costs at the same or higher levels, profit margins for SG/TO projects are squeezed relative to deepwater. Moving forward, unconventional margins may improve as the industry continues to innovate, driving down costs or increasing recoveries per well.

Given these complexities and the varieties of asset types available, it's clear there is a wide range of rewards from unconventional and conventional opportunities and it is impossible to reach any neat generalised conclusions.  

Corporate strategists should identify and prioritise their portfolio needs and have a clear rationale for each resource theme. Business developers and new venture teams should search and screen for opportunities that best meet those needs and evaluate options using the most appropriate metrics that align with their strategy.

Download white paper

To read more of our in-depth analysis on the competition between two these two investment themes, register your details and download the latest white paper from our expert consulting team.  

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