There have been some signs the shale boom that re-energized America’s domestic energy industry a few years back, might be entering a maturing phase of its development. A phase where weaker players would hit a debt wall or be bought out at discounted value. A phase where, companies with cash who might have felt shale plays were too frothy at present levels, and had stayed on the sidelines waiting for the “froth” to dissipate. Biding their time. Now you can now almost hear the knives on the whetstone.
Beginning in 2019 these signs began to take shape in the massive retrenchment of the service industry that powered shale growth. Companies like Halliburton, (HAL) and Schlumberger, (SLB) threw in the towel and began to take charges against earnings, and layoff hundreds of staff.
This trend took on a real and tangible face when in a recent filing Chevron (CVX) said it would write down and put on the auction block its Marcellus shale assets. Assets it acquired from Atlas Energy in 2011 for $3.2 bn.
In the third quarter, 2019 conference call where this news was released to analysts, Michael Wirth, Chairman and CEO of Chevron commented-
“Mr. Wirth said Chevron must be selective about its investments moving forward, focusing on oil-rich regions like the Permian Basin in West Texas and New Mexico.” – WSJ
According to CVX, not all shale is created equal. Let’s make a note of that! My job as an oil industry expert is to dig a little deeper and see if we can determine just what drove this decision.
The Marcellus vs. The Permian
Why is Chevron abandoning the Marcellus for the Permian? Let’s take a look at the isopach maps for both. In the graphic for the Marcellus, noted as Figure 2, you can see it is a relatively thin structure over most of its extent. And thins progressively the farther west it goes. The EIA comments thusly about production in the Marcellus:
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