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One might expect similarities between the country's two lowest
cost onshore plays—the Permian Basin and Appalachia. But we're
seeing operational leadership take two different trajectories as
super-majors take over the Permian in West Texas, and pure plays
take over the Marcellus in Appalachia. Our North America plays
& basins experts, Reed Olmstead and Imre Kugler join the
podcast to discuss. Here's an excerpt of the
conversation on our Upstream in Perspective podcast.
Jessica Nelson:
I think it was the Marcellus that got majors excited about
unconventionals as what was then Statoil, partnered with Chesapeake
back in 2008. Now the majors are all but rounding errors in
Marcellus activity levels. What explains the emergence of pure play
operators as relative to the disappearance of the majors?
Imre Kugler:
That's a good question. I think you can see there was an
excitement among the super-majors early on getting into gas
opportunities. But that was all premised on a relatively high gas
price, so $7 MMBtu. Gas growth was pretty dramatic. The price got
depressed very quickly, and now we're in a $3 price
environment.
Reed Olmstead:
It's interesting, because we saw something similar on the oil
side, where oil went from $90 down to $28. The divergence of the
trajectories is that oil came back. That's when the super-majors
got into the Permian Basin. It wasn't at the
low point of the price cycle. It was as the price was rebounding.
In the Marcellus, the majors got in when things worked at $7. It
was great. It might have worked at $4. But when we saw prices go
down below $2, it didn't make sense. They got burned. They pulled
back and allocated capital other places. We've seen the oil price
come back up, and that's been a large draw for the Permian. It's
been tested at these low prices and has proved resilient, and so
there's less risk in that opportunity for the majors, at this
point.
Imre Kugler:
And cost played a key role there, too. There was a disconnect
between gas and oil prices for a while, and so that didn't drive
all the efficiencies. We realized 2015, 2016, and 2017, because
they had low oil and low gas at the same time, so the only way to
really survive was to become much more efficient.
Reed Olmstead:
Yeah, which is what really drove the pure plays in the
Marcellus. These guys decided we're going to have to work this
asset as good as we can. Their pure play is not necessarily by
choice, but by fate. They just didn't get out. So, it wasn't that
they chose to stay, it's that they didn't choose to get out.
Whereas we've seen a different evolution of the Permian Basin, as
oil price came back.
Imre Kugler:
Yeah, and that's a good point, too. When you think about the key
Marcellus operators, they leased that land 10 years ago. You think
about Range, EQT, Cabot, Chief, Southwestern, they've basically
been buy and hold. You saw in the Permian all the big, almost
breathtaking transactions. Part of the strategy was lease, get some
landmen together, and then sell off, even drill some wells, prove
it up a bit, sell off again. It was a very different picture.
