With its cash operating costs at less than $10/bbl, ExxonMobil Corp.'s Permian Basin and Bakken Shale developments "remain attractive and competitive, even in the current environment," ExxonMobil Corp. CEO Rex Tillerson said Wednesday.
He and his management team held court for more than two hours to discuss strategy at the annual analyst meeting at the New York Stock Exchange.
Still the reigning natural gas producer in the United States, the Irving, TX-based supermajor has let its gas development in the onshore languish over the past few years as it has concentrated on more liquids prospects. But with an onshore resource base alone of more than 15,000 billion boe over 2.1 million net acres, Tillerson said a host of possibilities awaits to be unearthed once market conditions improve.
The U.S. unconventional portfolio "is a big part of this flexible program to focus on the best prospects at the right time," he said. That doesn't include too much onshore natural gas development in the near term.
"Generally, as you've seen for some time, we've let some of the gas volumes decline because of weak market conditions," Tillerson told analysts. "If you look at the project mix, you can see it's very heavily liquids-weighted."
Senior Vice President (SVP) Jack Williams, who oversees the onshore portfolio through the XTO Energy Inc. unit, said gas isn't a priority but it's still a huge piece of the portfolio.
"There's nowhere where we're really ramping hard on gas volumes," Williams said. "Certainly in the U.S. we're letting gas volumes decline. I would say it's going to gradually change to a little more oily mix, but I wouldn't say it would be significant over the next several years...Gas would fall off just a tad and oil would grow a bit."
The onshore gas portfolio is ready to expand once market conditions are right, said SVP Andy Swiger.
"There's certainly more demand being created in the United States and a lot of supply; we all know that," Swiger said. "There's a lot of demand outside the U.S. and we're seeing some of that." But "we'll progress the best project and execute when it's appropriate. It's very hard to put all of the moving pieces together and say, 'we've got a solution in one or two years'" that would help grow gas demand.
The key today is onshore liquids growth with gas still in sight.
"We've got a very robust liquids inventory that we are tracking today," Williams said. "We're drilling for gas in the Utica Shale and in the Haynesville Shale today, and it's attractive at $2.00 Henry Hub...And we are cherry picking some locations today. We will be very patient when we ramp up. We have a nice position in most U.S. gas plays, and we will bring those on when market conditions warrant.
"In the meantime, we'll continue with our attractive liquids program."
The biggest liquids targets are the Permian and Bakken, with total net production currently 220,000 b/d net. Improving costs and output are the main drivers, Tillerson said.
"In 2015, we increased net Permian and Bakken production nearly 25%. The Permian unconventional production component nearly doubled as we increased horizontal drilling in the Wolfcamp formation in the Midland Basin.
"Additionally, we continued to enhance our acreage position through trades and farm-ins," he said, noting that since 2015, ExxonMobil has completed five transactions in the Permian's Wolfcamp and Spraberry areas, giving it roughly 135,000 operated net acres in the heart of the play (see Shale Daily, Aug. 6, 2015; Sept. 19, 2014; May 22, 2014).
Operating more than 80% of its domestic unconventionals allows ExxonMobil the flexibility to decline or ramp up when and where it suits them.
"For example, we reduced our rig count over 60% from peak 2015 levels, and we have flexibility to quickly take activity up or down depending on the market conditions," Tillerson said.
He used the Permian as an example of how the company has improved its U.S. unconventional profitability.
"Since early 2014, we've drilled 118 wells targeting the Wolfcamp and Spraberry formations. In a very short amount of time, we have significantly reduced drilling and completion costs, increased productivity and aggressively improved total unit development costs."
In the Wolfcamp wells, drilling costs/foot have been cut by more than 60% through reduced drilling days, increased lateral lengths and lower service costs. Efficiencies and the captured market savings have in turn reduced fracture stimulation costs/foot by more than 70%.
"With longer lateral lengths and improved completion designs, we have improved recovery per well more than 80%," the CEO added. "Lower drilling and completion costs and higher recovery have resulted in a 60% reduction in Permian Wolfcamp development costs, which are now less than $10/bbl.
"We achieved similar results in the Bakken play, where we reduced unit development costs by more than 50% since 2012 to today less than $11/bbl. We've quickly transferred market learnings from the Bakken to the Wolfcamp, dramatically accelerating the learning curve benefits in just 18 months."
The company's "reliable production base and financial strength" allow it to move through the volatile price cycles at a steady pace.
"While our aperture is wide open, we are highly selective in what we pursue," he said. "Exploration activity is focused on two things. The first is exploring near some of our most profitable areas," including the Gulf of Mexico and offshore Newfoundland, where discoveries may be tied back to existing infrastructure.
The second focus area is exploring in new areas with high resource density, which carry higher risk "but much higher potential."