How do the Majors stack up in the Lower 48?

The Majors have made big strategic bets on the Lower 48. The scale, returns and investment flexibility offered by tight oil and gas has made it an essential part of most major players’ portfolios.

”US unconventionals have enormous potential – and the Majors have taken note,” Roy Martin, a research analyst in Wood Mackenzie's corporate upstream team, said.

“Following BP's US$10.5 billion deal with BHP, all of the Supermajors have a footprint in the Permian Basin, and are poised to deliver an unprecedented phase of production growth that will see output reach new highs over the next decade.”

Today, Wood Mackenzie releases The Majors in US Unconventionals, an in-depth study on the IOCs’ comparative positions in the Lower 48. The report looks at a number of issues, including:

• How important the resource theme is to the Majors?
• How do the companies’ approaches compare?
• Who has the best Permian position?

US unconventionals are crucial to the Majors, both for value and volume. Without these volumes, the Majors’ collective production would enter long-term decline from 2020.

Volumes from the Lower 48 underpin future value: by the middle of the next decade, US unconventionals will be generating US$15 billion to US$20 billion of annual cash flow for the group, and will account for around 20% of total upstream value.

Mr Martin said: “US unconventionals will drive the Majors’ output to new highs. Their investment in the resource theme is set to nearly double over the next five years, underpinned by tight oil. Only Total and Eni still lack material exposure.

“We think the advantages of scale in US unconventionals will continue to manifest themselves as the industry shifts close to a ‘big company’ business – almost resembling conventional oil developments,” he added.

ExxonMobil ranks number one in terms of scale: most acreage, biggest resource, highest peak production.

“No Major has comparable diversity across the Permian, Bakken, Eagle Ford, Haynesville and Marcellus plays,” Mr Martin said.  

“BP's deal with BHP is transformational, establishing scale in tight oil in one fell swoop, and setting it on course to overtake ExxonMobil as the leading shale gas producer.”

Chevron has the most valuable portfolio, dominated by its unrivalled Permian position.

“Underpinned by its low-royalty Permian position, Chevron possesses the most attractive IRRs on new US conventional projects among the Majors. Its future investment in the resource theme of US$54 billion is second only to ExxonMobil,” he said.

The Majors’ differentiated drilling strategies is also notable. In the Permian, for instance, Shell shows a preference for larger completions in its Delaware core, while ExxonMobil remains the most committed to drilling laterals longer than two miles across its entire Permian position.

“When benchmarked against the leading Independents, the Majors appear to be adopting a longer-term approach to completions, sacrificing high initial production rates in favour of shallower declines, and ultimately, higher recovery rates,” Mr Martin said.

He added: “We expect the Majors to continue to expand their footprint in tight oil, and the Permian in particular, over the coming decade. Any increase in the Majors’ share of Permian output will have knock-on ramifications for global supply.

“However, other factors driving the Majors’ strategies in unconventionals – competition for capital, portfolio mix, balance sheet strength, cost advantages, shifting investor sentiment – will have a much greater impact.”

*Peer group: This report covers the five Majors with material exposure to US unconventionals: Chevron, Equinor, ExxonMobil, Shell and BP (BP analysis includes the portfolio acquired from BHP, unless otherwise indicated). All reference herein to “the Majors” covers these five companies. Total and Eni are excluded from this analysis, given their lack of materiality in US unconventionals.