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Wood Mackenzie have an interesting set of slides out from their recent Insight series (subscription required).

WoodMac’s analysis indicates that Large Cap oil companies such as Apache, Hess, & Devon already get ~45% of their production from Unconventional hydrocarbons.

The Unconventional is becoming conventional…

Unconventional Production Mix

Unconventional Production Mix

This contrasts with the Major oil companies, such as Exxon, BP, & Shell, who get just ~15% of their current production from Unconventionals. Chevron, Exxon, and Shell seem to be the most leveraged of the Majors to the new technologies. By 2022 the Majors are expected to have expanded their Unconventional operations and  ~25% of their production will be from these technologies.

Production mix by oil Major

Production mix by oil Major

By 2022 Large Caps are expected to get ~60% of their production from Unconventionals.

This will be a huge success story on the way up. And not just for the oil companies themselves. Given the rapid decline rates from existing Unconventional wells, and the low production rates from any new wells, that’s an awful lot of drilling, hauling, and hard work.. Drilling companies, service companies, haulage companies, and just about anyone who sells widgets to the Unconventional oilfield will be doing quite well.

By 2022 Unconventional hydrocarbon production is predicted to be double that of 2012, at ~12 million boe/d. Shale and tight gas are predicted to be the dominant product.

Unconventional Production Growth

Unconventional Production Growth

But, beware, when the growth slows then there will be a hangover. It will come on suddenly, and for most, unexpectedly.

Due to the rapid decline of Unconventional fields, production will drop off incredibly sharply once the drilling stops, or even slows. As the fields get larger, the companies will have to run faster and faster, drilling more and more, just to preserve production. Eventually (in the absence of some serious re-fracking technology), they simply won’t be able to keep up. Drilling will slow or stop, and production will plummet, with the all the resulting impact on share prices for the firms and the wider industry.

Effectively, modern Unconventional oil companies are acting like the banks in the early 2000s, as the global finance industry gobbled up risk by doubling down on mortgage back securities. The short term looked so great, and for a while the profits are spectacular, but then growth couldn’t keep up and the bell tolled.  Beware the end of the party…

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