In early 2013 the USGS put out this map of the shales, at that time the Bakken was the only big commercial shale.
This map, from the same time, shows land rigs crisscrossing the US hunting down the shales, at that time we had no idea which shales were significant, commercial or the scale of the technological impact.
Today, the EIA closely tracks activity in these counties, and we have the Marcellus/Utica which have changed the economics of natural gas (resource the size of Russia, economics make decent returns at $3.) We have the Eagle Ford, which is commercial,but not much larger than the Bakken, and then we have the Permian. In area the Permian is 75000 sq miles or 48m acres. Under this area there are 13 shale horizons, today at $50, there is active drilling on 3.
Parsley Energy, an independent with 120000 acres claims 2bn resource barrels on their current drilling methodologies. Thats 16bn boee per million acres. Now Parsley is only including 2 of the shale horizons in this calculation, though management is indicating another 4 horizons have commercial potential. So Oil in the rock under Parsley's land could conceivably yield 4bn boee. If we include all 13 horizons for the calculation of Oil resource in place, and potentially recoverable, that directly leads us to a figure that looks like 8bn boee, or 64bn boee potential per million acres.
Parsley numbers are not dissimilar to other Permian players.
EOG, for example, claims 2.3bn boee on 3 horizons. EOG does not disclose acreage particularly well, we can estimate numbers at something like 13-14 boee per million acres, that is in line with Parsley.
CEO did said this:
The third implication is we can return to triple-digit direct rates of return with oil as low as $60 per barrel.
And if history is any indication, we will continue to push the oil price needed for triple-digit returns even lower.
EOG uses after tax cash flow return on capital at risk as its core measure of profitability.
Look, we could go on for pages like this. We have multiple Permian operators giving us approximately the same story.
Here's Oxy's famous slide, which covers 2.3m acres of land all over the Permian. At $80 oil all 8700 locations are commercial, and that implies some 7.6bn boee of resource, or 3.3bn boee per 1m acres. Oxy's acreage, being legacy, and all over the map, is 'average', unlike EOG, Parsley or others, they have not cherry picked the best acreage.
We can therefore roughly estimate the following:
At >$80 Oil: Permian resource: 159bn boee commercial recoverable. (or approx Canada)
At $80 Oil: Permian resource: 95bn boee commercial recoverable. (Iraq?)
At $70 Oil: Permian resource: 76bn boee (3x China)
At $60 Oil: 63bn boee. (50% of Russia)
At $50 Oil: 21bn boee (Brazil)
At $40 Oil: 6bn boee. (No serious countries we know in conventional are commercial down at $40.)
Further, on Oxy's estimates 29bn boee has been moved into the commercial zone (<$60) over the past year.
The Permian is in Texas, it has excellent property rights, plenty of quoted equity, some excellent management teams with a history of strong value creation, best of all it is the centre of a technology hurricane which continues to drive capex per boee developed down at a decent clip.
We'll take Oxy's numbers again because they have AVERAGE acreage. In an environment where we have a rising Oil price across falling development costs in the Permian, I think I am going to make much money owning these stocks.
Every time I look I go buy more.