U.S. Shale Development:

The Impact of Scale, Cycle Time,

and Oil Entrepreneurship

Dr. Donald L. Paul

Executive Director, USC Energy Institute

Professor of Engineering and

William M. Keck Chair of Energy Resources

OIL, MIDDLE EAST, AND GLOBAL ECONOMY

1 April 2016

U.S. Shale Development:Discussion Themes

• Oil entrepreneurship

• The U.S. shale resource

• Factors shaping scalability and cycle-time

• Summary comments

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Historical Oil Prices: 1861 to 2016

Ref. BP Statistical Review; EIA

Los Angeles City Oil Field - 1895

Early U.S. oil entrepreneurship

Early U.S. oil entrepreneurship

Los Angeles City Oil Field – 1902

200 companies and “an oil well in every yard”

Early U.S. oil entrepreneurship:Key drivers then – and now

• Private ownership of mineral resources

• Abundant private risk capital

• Established financial resolution mechanisms

• Flexible entrepreneurial supply chains

• Continuous process and technology improvements

Early U.S. oil entrepreneurship:Key drivers then – and now

• Private ownership of mineral resources

• Abundant private risk capital

• Established financial resolution mechanisms

• Flexible entrepreneurial supply chains

• Continuous process and technology improvements

Oil Entrepreneurs:

oil companies, suppliers, financiers,

land companies, and more…..

Shales are now a major new oil and gas resource base for the U.S.

A major new oil resource base for the U.S.

Shale development factors affecting scalability and cycle-time

Shale development factors affecting scalability and cycle-time

• Geology of shales

• Private (and state vs. federal) mineral ownership

• Onshore infrastructure

• High levels of repeatability and standardization

• Specifics of cost structure for HF wells

• High initial production rates and cash flow

• Vast numbers of wells

Shale development factors affecting scalability and cycle-time

• Geology of shales

• Private (and state vs. federal) mineral ownership

• Onshore infrastructure

• High levels of repeatability and standardization

• Specifics of cost structure for HF wells

• High initial production rates and cash flow

• Vast numbers of wells

Shale development

has evolved into an

entrepreneurial +

manufacturing

business model

Summary Comments

Summary Comments

• The history of U.S. oil entrepreneurship continues

Summary Comments

• The history of U.S. oil entrepreneurship continues

• Scalability and short-response time characteristics have evolved a “manufacturing” business model which has responded quickly to the downturn

Rapid response to the downturn in oil prices

Summary Comments

• The history of U.S. oil entrepreneurship continues

• Scalability and short-response time characteristics have evolved a “manufacturing” business model which has responded quickly to the downturn

• The downturn is resetting the cost floor, driving material improvements in well productivity and technology, and re-allocating assets and portfolios

Resetting the cost floor

2016 level?

Ref. EIA 2016 Well Productivity Report

Improving well productivity

Summary Comments

• The history of U.S. oil entrepreneurship continues

• Scalability and short-response time characteristics have evolved a “manufacturing” business model which has responded quickly to the downturn

• The downturn is resetting the cost floor, driving material improvements in well productivity and technology, and re-allocating assets and portfolios

• Even with more than 80,000 wells drilled in the last decade, at least that many new development locations have already been identified

Thank You

Questions?