Shell Sees Strong Potential for Permian Basin Assets

Royal Dutch Shell is seeking to transform its Delaware Basin acreage into a self-sustaining position as quickly as possible to deliver the long-term cash flow that Shell wants from its shale business.

Bruce Palfreyman, general manager of Shell’s Permian asset group, said the company believes it has the best position in the Delaware, part of the Permian Basin in West Texas, in terms of size and rock quality. The company holds 300,000 net acres in the Delaware through its joint venture with Anadarko Petroleum Corp., with more than 5,000 future well locations on a risk basis.

Shell acquired the acreage in 2012 from Chesapeake Energy, and has spent the past three years maturing and de-risking the acreage, Palfreyman told reporters during a media event Monday in Houston to outline Shell’s strategy on its unconventional oil and gas business. The company has pursued a high-grade strategy for its Permian acreage, selling off peripheral acreage. Shell’s position in the Delaware contains 2 billion barrels of oil equivalent.

 Palfreyman said that Shell sees production and cash flow potential in at least three possible Wolfcamp plays, the well-developed Bone Spring III, the Avalon play, and the Bone Spring II play. Shell sees multiple benches in the Bone Spring III play. Shell plans to bring in the current price environment a few things into development, focusing on longer laterals and more wellpad activity. Like other acreage acquired in the 2010-2013 timeframe, much of the early appraisal drilling on the acreage was leasehold drilling.

Over the past two years, Shell has increased the expected ultimate recovery of its Wolfcamp wells by 130 percent, and expects the EUR to increase another 20 percent this year, Palfreyman said. Given its performance and well cost reduction, Shell estimates that 75 percent of its acreage has a breakeven price of $35 to $50/bbl. Palfreyman attributes the improved performance to fracking long laterals, sweet spot selection, and eliminating non-core acreage drilling.  To date, Shell has drilled two 10,000-foot lateral wells. The company’s goal is to drill as long as laterals as possible without adding significant cost.

Shell expects to see continued asset swapping in the Permian Basin, given that land is the type of currency most readily available in today’s low oil price environment, Palfreyman said. Shell has been swapping Permian Basin assets with Anadarko, EOG Resources and other companies as companies try and lay out development programs allowing for longer laterals. Palfreyman also sees future production potential from drilled uncompleted wells in the Permian. He noted that companies other than Shell are working with private equity firms to fund smaller acquisitions in the area.



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