events and price thoughts, page-12

TShirt's post sparked my interest in Oxy's operations near Paloma, which would be the Elk Hills and Buena Vista fields (see map). How quickly has Oxy been developing this resource, and how well is its development doing?

SHORT ANSWERS: (a) Oxy got up to speed quickly with shale wells since 2009; (b) Oxy is having problems and second thoughts about Calif shale wells, so is cutting back in 2013.

Oxy bought into Elk Hills in 1998 and in Q3 2012 produced about 37,000 barrels (liquids; plus 19,000 boepd of gas). In 2011, Oxy had about 30 rigs in Calif and drilled 675 wells, 330 of which were in Elk Hills. It didn't report how many of these were shale oil wells, but one report says Oxy drilled 170 shale wells across US in 6 months of 2012, half in Calif.

In 2009, Oxy began exploring shale oil potential in Calif and has since drilled dozens (possibly hundreds) of shale wells in Calif. One source says 1/4 of Oxy's output in Calif is now from shale wells. But its Calif drilling program is now being cut back (from 30 rigs to 20 rigs in 2013) and it is particularly curtailing its "deeper and more technically challenging Monterey acreage it holds in the central San Joaquin Valley". This is mainly because of the high costs -- the CEO says they are double what was planned whereas he cites Lost Hills (traditional vertical?) wells costing only $200k.

Oxy is also curtailing its Calif shale drilling because of complexity of the Calif shale and high decline rate in its wells to date:
"California shale economics are also vexing. Explaining why the company is stepping back some from an aggressive shale well development plan in Elk Hills, Chazen said those wells face a high decline rate—"maybe 30-40% in the first year, maybe more," Chazen said."

Finally, Oxy reports 30-day Calif shale well IP rates of 300-400 boepd (80% oil). These figures seem a bit low compared with Eagle Ford and Bakken 30 day rates, IMO. They are comparable to Niobrara, where I suspect horizontal wells are cheaper. So, low production output likely contributes to Oxy's pull-back from Calif and Elk Hills shale wells.

These are just my interpretations of these sources, so please DYOR.
Sources: "Oxy Chops Costs", Platts Oilgram News, Oct 2012; "Shale Tech," Oil World, Nov 2012; Oxy Conf Call, Oct 2012; Oxy Presentation, Jan 2013.