Halls of Shrewd'm / US Policy
No. of Recommendations: 6
No. of Recommendations: 1
I wonder what the end game is
Take it all ?
No. of Recommendations: 2
I am a bit surprised at purchases above $60. Stake with warrants is above 30%. And sure to climb higher as OXY accelerates buybacks.
These should be better opportunities if there is a recession or slowdown as oil prices will crash.
Also wondering if a full acquisition is on the cards.
No. of Recommendations: 8
I imagine the "end game" plan is either for Berkshire to own all of Occidental or Berkshire to "bless" a tax-free (tax deferred) merger of Occidental into Chevron where Berkshire becomes Chevron's largest shareholder but in a much more liquid security than being OXY's largest shareholder. There is no good exit where Berkshire starts selling OXY shares on the open market, filing a Form 4 every 3 days showing their sales.
I would rather see Berkshire bid for all of OXY when the time is right, selling the CVX shares to fund the deal like he did with the railroads, and have OXY's cash flow added to Berkshire. Let them slowly work on paying off the preferred and reduce their common share count for a few years here, while Buffett locks in part of his eventual acquisition at non-control-premium prices. It's the average cost that matters, and Berkshire can offer a much better looking/competitive headline buyout offer when they have already locked in half the price at a low multiple.
No. of Recommendations: 7
No. of Recommendations: 2
Once again the OXY August 2027, 22-strike warrants are trading below $36 per share. Lots of order fills this morning.
(edit: now 36.50 but still attractive)
No. of Recommendations: 4
No. of Recommendations: 3
Another 7,886,964 shares purchased for $466,678,969. Average price paid $59.17.
A half a billion here, a half a billion there. Starting to add up.
He has regulatory approval to go to 50% ownership.
No. of Recommendations: 1
No. of Recommendations: 0
It's crazy but the SPR still hasn't completed its sales. And is not buying currently, but expects to buy in December 2023.
No. of Recommendations: 7
Crude is below $67 from $80 ten days ago.
There are reasons why big oil companies like XOM base their huge multi-year investments on base cases like $60 Brent crude with $40 sensitivity cases.
"Stuff" happens. Always has - always will.
No. of Recommendations: 3
"There are reasons why big oil companies like XOM base their huge multi-year investments on base cases like $60 Brent crude with $40 sensitivity cases."Doesn't Mr. Market generally value the E&P companies priced based on strip prices?
https://www.cmegroup.com/markets/energy/crude-oil/...Strip pricing currently has WTI at
less than $60/bbl from May 2027 and beyond.
With inflation at ~6%/year, am guessing that Buffett/Munger think oil prices will be significantly higher than $60 a barrel in 2027 and beyond.
No. of Recommendations: 9
With inflation at ~6%/year, am guessing that Buffett/Munger think oil prices will be significantly higher than $60 a barrel in 2027 and beyond.
Buffett stated that his support of Oxy was a bet on oil prices. But as long as he doesn't acquire the company he can change that bet (and Chevron) if circumstances change. I'm in the camp that doesn't want to see them acquire Oxy for just this reason. And don't buy the Oxy story on DAC. They've got a long row to hoe before that becomes a reality - in spite of their projections.
I don't see $60 WTI as an economic threat to fear. Without checking, I believe XOM has stated that it would have a 10% ROCE on Permian investments at $35 prices. Both Chevron and Oxy own the mineral rights to a lot of their Permian properties - i.e., don't have to pay landowner royalties. So they should be in comparable or better shape. They'll all do fine at $60 prices. Higher is nicer but .....
No. of Recommendations: 6
No. of Recommendations: 12
Year to date, BRK has purchased 17,355,469 OXY shares for $1,037,437,137. Average price paid: 59.78.
https://dataroma.com/m/rt.phpInterestingly, all those purchases were made in March, and the month is not over yet.
Recall Buffett's comments on OXY at last year's AM:
https://buffett.cnbc.com/video/2022/05/02/morning-..."And the degree to which the market got dominated by that (gambling) is shown on a slide some ' I have it here somewhere. Yeah. Here's ' on [slide] Oxy-one ' if you'll put up the Oxy-one.
That shows how we bought what became ' well, we bought in two weeks (mostly in March), or thereabouts, 14% of Occidental Petroleum.And you'll say, 'Well, how can you buy 14% of a company in two weeks?'
And it's more extreme than that, because if you look at the Occidental proxy, you'll see that ' the standard names ' BlackRock index funds, State Street index funds, basically, Vanguard index funds, and then one other firm, Dodge & Cox.If you take those four entities ' and they're not going to buy and sell stock ' they may get their own little ' so they own 40% of the company, roughly, those four firms.
And they didn't do anything during this period. So now you're down to 60% of the Occidental Petroleum Company that's even available for sale.
Occidental's been around for years, and years, and years. Big company, all kinds of things. And with 60% of the stock outstanding, I go in and tell Mark Millard, this fellow that is 30 feet away from me or so, and I say in the morning to him, you know, 'Buy 20% and take blocks, or whatever it may be.'
And in two weeks, he buys 14% out of 60%. That's not investment. (Laughter)
I mean, you're not buying from ' I find it just incredible."It appears as if Buffett's appetite for OXY below $60 is still quite strong.
In the mean time, you have OXY continuing to repurchase shares, completing $3Bn in share repurchases last year, and this year re-authorizing an additional $3Bn.
https://www.oxy.com/globalassets/documents/investo...With CEO Vicki Hollub apparently speaking to Mr. Buffett recently, I hope she is taking a hint and repurchasing shares of stock aggressively at sub $60.
At a current market cap of $54 BN, these share repurchases are not insignificant.
No. of Recommendations: 7
Big company, all kinds of things. And with 60% of the stock outstanding, I go in and tell Mark Millard, this fellow that is 30 feet away from me or so, and I say in the morning to him, you know, 'Buy 20% and take blocks, or whatever it may be.'
And in two weeks, he buys 14% out of 60%. That's not investment. (Laughter)
I mean, you're not buying from ' I find it just incredible."
======
It appears as if Buffett's appetite for OXY below $60 is still quite strong.
Yes - another day, same buyer, as the Yahoo commenter says. It's a story that is playing out in front of our eyes. As of today, we are at 211.7m shares, out of 898.1m shares outstanding, so 23.6%, with warrants to buy another 83.9m, and with Occidental adding oil to the fire by repurchasing shares. Assuming the warrants get exercised (they are set at just under $60), that would give Berkshire about 295.6/(898.1+83.86), i.e. just a hair over 30% now.
I think what Buffett is amazed about is the fact that, out of about 540m publicly traded shares, you can buy 20% of the volume of shares traded on public exchanges and accumulate 14% of the company in 2 weeks. That basically means that 70% of the company's shares not held by index funds get traded every two weeks, or in other words, the share equivalent of the whole company gets bought and sold every 3 weeks. It is amazing, when you think about it, and I guess it is all the more amazing for someone like Buffett who wants to buy a big chunk (or all) of the company and hold it for a long time, to see the volume of shares traded every day, basically like poker chips and not like an owner's investment in an ownership stake of joint venture.
My guess: we go slowly right up to 50% on the public markets with no premium needing to be paid, then exchange the warrants to get to 59.4%, and then buy the rest in short order, at a 15-20% premium, meaning Berkshire ends up only paying about 7-8% premium overall. If going over 50% is not allowed under the current 50% limit (I think this is probably the case), he might also ask for a cashless distribution - for instance, Buffett could take the position to 48% of so, and then, if the shares are at $80, he could trade in the warrants for 1/4 the number of shares (about 21 million shares) without paying any cash, and get to a 50% position that way. Does anyone know whether a cashless distribution has been ruled out, in the warrant documentation?
Buffett may be in no hurry because (a) the warrants give him the ownership upside without the downside in case something goes wrong, and (b) the preferred shares, earning 8% until they are repaid at a 10% premium, are too good to fold up voluntarily with a full takeover offer. But if Occidental's earnings hold up, they may increase the dividend, which would making owning shares more attractive than owning warrants. Or alternatively, Occidental might choose to retire the preferred shares, and that might be the moment where Buffett takes the position up close to 50% stake - and remember, if you can buy 14% in 2 weeks without overly affecting the share price, going from 30% to 48% wouldn't take long...
Regards, DTB
No. of Recommendations: 0
The question is, who keeps selling oxy at 60 , knowing he has , in effect , put in a floor at 60? Seems odd ?
No. of Recommendations: 2
'My guess: we go slowly right up to 50% on the public markets with no premium needing to be paid, then exchange the warrants to get to 59.4%, and then buy the rest in short order''
This is exactly how I see the OXY plan and we benefit from those preferreds along the way. Classic BRK type of position- Business he/we can understand, supply/demand, high quality mgt and capital allocation and improving balance sheet, at a reasonable price and forward thinking mgt with carbon capture. Heads we win, tails we win imo whether we acquire OXY or just build up the position. Seems to rhyme with BNSF deal potentially but without BRK shares as currency. Will be fun to see how this all unfolds.
No. of Recommendations: 29
"Yes - another day, same buyer, as the Yahoo commenter says. It's a story that is playing out in front of our eyes."Buffett
loves a good story, and the Paul Harvey in me says there's more to the OXY "story" than first meets the eye.
1942 Warren Buffett made his first investment in Cities Service preferred:
"On March 11th, it will be 77 years since I first invested in an American business. The year was 1942, I was 11, and I went all in, investing $114.75 I had begun accumulating at age six. What I bought was three shares of Cities Service preferred stock. I had become a capitalist, and it felt good.":
https://www.berkshirehathaway.com/letters/2018ltr....But like many of us, our young hero had "paper hands". Soon after buying, the stock plunged from $38.25 to $27 a share. His sister Doris reminded him daily on the way to school that her stock was going down. Buffett felt 'terribly' responsible. When the stock recovered he sold with a slight $5 profit. Almost immediately after, Cities Service quickly soared to $202 a share, reflecting the value that 11 year old Buffet originally saw in it.
"Warren learned three lessons and would call this episode one of the most important of his life. One lesson was not to overly fixate on what he had paid for a stock. The second was not to rush unthinkingly to grab a small profit. He learned these two lessons by brooding over the $ 492 he would have made had he been more patient. It had taken five years of work, since he was six years old, to save the $ 120 to buy this stock. Based on how much he currently made from selling golf balls or peddling popcorn and peanuts at the ballpark, he realized that it could take years to earn back the profit he had 'lost.' He would never, never, never forget this mistake. And there was a third lesson, which was about investing other people's money. If he made a mistake, it might get somebody upset at him. So he didn't want to have responsibility for anyone else's money unless he was sure he could succeed. - Alice Schroeder "The Snowball"
____________________________________________________________________________________________________________________
1981 Vicki Hollub started her career as an engineer for Cities Service:
"I have worked in the oil and natural gas industry my entire career, beginning in 1981 as an engineer with Cities Service Company. I have had the privilege of working in most oil and gas producing states and internationally in Europe, South America, and the Middle East."https://www.energy.senate.gov/services/files/84A01...____________________________________________________________________________________________________________________
1982 Occidental Petroleum purchased Cities Service for $4.2 Billion, giving OXY greater exposure to U.S. oil and gas assets to offset the rising risks surrounding in their largely foreign holdings (recall Arab Oil Embargo).
https://www.oklahoman.com/story/news/1982/08/26/ci...____________________________________________________________________________________________________________________
2023 Charlie spoke about long time OXY CEO Armand Hammer at the DJCO meeting:
Becky: Is the same type of thinking with Berkshire's new position in Occidental and Chevron? Is it the same type of thinking? Or is it likely to be more of a long-term type of holding for Berkshire going forward?
Charlie: "Well, that is a very good question. And I think having a big position in the Permian Basin through those 2 companies, it's likely to be a pretty good long-term hold. So I like that aspect of that position.
I kind of admire both places a lot. Both Occidental and Chevron are very admirable places. And by the way, Oxy didn't start like that. If you go back 30, 40 years, Oxy was owned by a crook. And now it's evolved into a wonderful place, but it started as a sleazebag.
Becky: Who was running it 30 or 40 years ago?
Charlie: A man named Armand Hammer. Before your time, Becky. You're too young.https://steadycompounding.com/investing/djco23/____________________________________________________________________________________________________________________
Another quote from Charlie(date unknown):
'Last night, referring to some of our modern business tycoons ' specifically, Armand Hammer ' I said that when they're talking, they're lying, and when they're quiet, they're stealing. This wasn't my witticism; it was used [long ago] to describe the robber barons.'https://25iq.com/2015/10/24/a-dozen-things-ive-lea...For a long time, OXY was headquartered in L.A.. Chances are good that Charlie had met Hammer and/or knew people that knew him. In any case, Charlie was aware of OXY and their leadership/business practices going back at least 30-40 years.
_____________________________________________________________________________________________________________________
These little tidbits may help fill in some more of the blanks towards what could become a very interesting "story". No wonder Warren seems infatuated with OXY and Vicki. OXY is the reincarnated version of his first investment mistake. A Phoenix that has risen from the ashes. After striking out 80 years ago, he sees an opportunity to redeem himself.
Swing you bum!Hopefully, Warren and Charlie will live long enough to write the final chapter of this story, and the story will have a happy ending.
Imagine OXY being wholly(or largely)owned by people who aren't "crooks". We can dream, can't we.
And don't ya love Charlie?!
No. of Recommendations: 4
1942 Warren Buffett made his first investment in Cities Service preferred.
'
1982 Occidental Petroleum purchased Cities Service
'
Great post! Did you put the puzzle pieces together yourself? WEB coming full circle!
No. of Recommendations: 11
1978 I started as a Geologist/Geophysicist with a Tulsa based company called Cities Service. They trained me, sent me to Denver but didn't pay well, so I moved on. Those who stayed for job security were mostly laid off when Oxy took over. They closed the Denver office. I bounced around the industry but did fine.
A guy named Buffett told me not to invest in oil stocks. The price of the stock just tracks the price of oil. If you know where that is going, invest in commodity futures.
Now most of my nest egg is invested with the Buffett guy. It has done well so I'll give him the benefit of the doubt. That, and I appreciate how much long term production is in the Permian Basin.
No. of Recommendations: 5
"For a long time, OXY was headquartered in L.A.. Chances are good that Charlie had met Hammer and/or knew people that knew him. In any case, Charlie was aware of OXY and their leadership/business practices going back at least 30-40 years."Just googled "Munger Tolles OXY"
Lo and behold:
"Energy and Regulated Industries
Clients
We represent some of the largest energy sector clients in America, including:
Chevron
Edison International ' Southern California Edison
Liberty Utilities
Occidental Petroleum
PacifiCorp"https://www.mto.com/practices-industries/industrie...Would be interesting to know how far back MTO had represented OXY.
No. of Recommendations: 15
"1978 I started as a Geologist/Geophysicist with a Tulsa based company called Cities Service. They trained me, sent me to Denver but didn't pay well, so I moved on. Those who stayed for job security were mostly laid off when Oxy took over. They closed the Denver office. I bounced around the industry but did fine."Interesting. We may have crossed paths.
1980 I started as a geophysicist with SOHIO in Denver after graduating from college. Then in the mid 1980's oil price crashed. Company closed the office in Denver and moved everybody to Texas. I abandoned ship and went to the "dark side", obtaining a graduate degree in Petroleum Engineering at a Texas University.
At SOHIO in Denver I worked with a very competent ex Cities Services geophysicist with the initials S.K.. He was a black belt in Karate and I used to work out with him after work. Toughest work outs I ever did. He went on to hold high positions at both EOG and Apache. You may know of him. We talked some about the Cities/OXY merger at the time it happened.
Following grad school 1987 hired on as an engineer with Amoco Production Company. Worked in a number of locations around the US, then transferred to international - Trinidad - Egypt - Indonesia. Wonderful experience for myself and family.
I distinctly remember being in Egypt in spring of 1998 when we shipped out a tanker of Suez crude and the price that was paid for that crude was less than $10/bbl. Things were looking pretty grim at that time. Later that same summer Sir John Browne CEO of BP took advantage of the low oil prices and purchased Amoco for $48 Billion, in what then was called "a merger of equals". For a while after the merger, the company was officially called BP Amoco. We former Amoco employee spoke under our breath that the logo said "BP Amoco" but the Amoco part was always silent. BP eventually dropped the Amoco name completely.
https://www.nytimes.com/1998/08/12/business/britis...John Browne pounced once again in 1999, almost bottom ticking the oil price, when BP announced they were purchasing Arco Petroleum for $27 Billion.
https://www.latimes.com/archives/la-xpm-1999-apr-0...In 2001 I was transferred from Cairo to Jakarta to work on Arco's newly acquired oil and gas assets in Indonesia. Great fun as we had a great group of BP and former Arco and Amoco staff all working and playing together there. BP did a very good job of integrating the different corporate cultures.
Anyway, that's part of my story and perhaps explains my fascination with BRK's OXY deal and ongoing share purchases.
No. of Recommendations: 1
Good to hear your tale. As part of my "bouncing around" I spent most of the '90's in Indonesia and Singapore, consulting for all sorts of companies. We must have a slew of connections. Nice to see there is some Oil and Gas expertise on the board, as our company buys more and more into the ol'biz.
No. of Recommendations: 2
A question for you guys that have oil & gas experience what do you think of OXY's CO2 business? Do you think BRK owning all of OXY would be good or not? With a 10-20 time horizon would you trade your BRK position for OXY at todays prices? How much more value is there in OXY over buying oil futures if any?
Thank you for willingness to share your life long experience.
No. of Recommendations: 12
Looking back at my career in the oil business, one of the things that stands out are the extreme cycles that occurred (1980-2020) due to fluctuating extremes in oil price. Truly a roller coaster ride.
Oil Price High:
Higher Profits/Investors Euphoric/Capital Available/Loose Internal Controls/Poor Capital Allocation/High Staffing Levels/Flood of Inexperienced New Hires
Oil Price Low:
Lower Profits/Investor Disdain/Tight Capital/Stringent Internal Controls/Better Capital Allocation/Staff Reductions/Loss of Industry Expertise
These extreme fluctuations make managing these business across multiple cycles quite difficult. Particularly for long term projects that may take a decade or more to complete before they generate revenue - offshore development or building out large scale carbon capture infrastructure for example.
As noted previously, M&A can occur at low oil price levels when well capitalized opportunistic "BIG FISH" swallow up "little fish" that are vulnerable when public markets/investors are skittish.
There is no doubt that OXY's asset base would be a very nice "bolt on" for one of the few remaining "BIG FISH". If OXY were wholly owned by Berkshire, the chance of an opportunistic "BIG FISH" swallowing them at some point would go to zero. Further, this would allow OXY management to better manage the business through the up/down price cycles. Berkshire would be much more tolerant of "lumpy" year to year earnings compared to a public market that focuses only on the next quarter. OXY's management would be allowed, perhaps even encouraged, to initiate projects that made good long term sense even if oil prices were temporarily low.
Capital (in quantity) would be available from the Parent for the right project in an industry that may soon become starved for capital (ESG movement). A wholly owned oil and gas company could provide Berkshire a new place to invest significant amounts of capital at returns higher than BHE's regulated and/or other wholly owned businesses can currently provide.
Berkshire management loves oil in a world where where developed nations increasingly hate it. Meanwhile, large developing nations continue to see rising oil demand in order to raise the living standards of their citizens (ESG be damned!).
Wonder if these dynamics might also play into Warren's/Charlie's thesis with regard to a large long term investment in OXY?
Would love to hear some pointed questions on this topic at the upcoming AM in May (wink, wink. nudge nudge. to those planning to attend and/or send in questions).
Have we beaten this one to death?
No. of Recommendations: 1
Almost beaten to death! Although it might be the next large acquisition.
If anyone is going to the AM, Vickie Holly, CEO of OXY will be the guest speaker Friday night at the Value Investor Conference. It's $150 to attend.
https://www.valueinvestorconference.com/shop-1
No. of Recommendations: 6
One thing that stands out to me in my career of working for a whole lot of different oil companies: none of them were ever able to predict the price of oil in long or short term. You would think that it would be a manageable supply-demand issue, and that the Exxons of the world would have a good insider's grasp, but the price has moved counter to their projections over and over.
That said, there are some factors in the current scene which differ from the past. We never expected oil demand to drop, but now there is a significant sentiment that oil use will, and must be, phased out. I'll refrain from offering my opinion, and just state that I think any phase out will take far longer than any of the goals being discussed. World energy demand is increasing at a rate which exceeds the total world energy currently produced by renewables. Those long term reserves will be money in the bank, and a good opportunity to deploy capital.
On the supply side, price is much more of a control knob than it once was. Fracking low grade deposits produces enormous productive capacity at high prices and very little at low prices. In the past, high prices resulted in bringing on new production which remained profitable at low prices once infrastructure was in place. High prices of the 1980's brought on a massive production boost from the North Sea. Those fields kept cranking through the low prices of the late 90's. The fracked oil being produced in large volumes in the US is very profitable at $80, decent at $50 and marginal at $30.
Let me know whether we are headed for a recession or not and how the war in Ukraine will turn out, and I'll let you know which price range we'll see.
As far as the OXY CO2 projects go, I'm not fond of it. China produces twice the CO2 of the US, so the world carbon budget will not see any effect of a few sequestration projects. The profitability of it all depends on what government subsidies or regulations are passed. I've never been a fan of making money in that universe, though I suppose it can work out well when done right.
No. of Recommendations: 0
Chances are good that Charlie had met Hammer
One rumor I've read a number of times is that Hammer was a Russian agent who was recruited during his stay in Russia from 1921 to 1930. He certainly met Lenin during that time. The fact that he was the US ambassador to Russia in the 1980s, was the type of intelligence coup that the KGB aimed for.
No. of Recommendations: 2
More behind the scenes background on the OXY story. Vicki Hollub interview at the Smead Investment Conference two months ago:
https://vimeo.com/810645111
No. of Recommendations: 1
More behind the scenes background on the OXY story. Vicki Hollub interview at the Smead Investment Conference two months ago:
https://vimeo.com/810645111Wow, did they film this things on an airplane? The low droning sound is intense.
No. of Recommendations: 0
Interesting interview. Thanks for the link.
No. of Recommendations: 15
"Wow, did they film this things on an airplane? The low droning sound is intense."Recording sounded perfectly clear to me. Here's the gist of it, and this is the upside that Warren and Charlie see in Occidental in my opinion.
At the annual meeting Warren/Charlie said the following with respect to OXY and the Permian:
https://buffett.cnbc.com/video/2023/05/08/afternoo...CHARLIE MUNGER: Yeah. It really dies fast, those shale wells. If you like quick death in your oil wells, we have them for you...
WARREN BUFFETT: "And we love the position with Occidental. And we love having Vicki run it.
CHARLIE MUNGER: And there's a lot more oil down there, if anybody can figure out another magic trick. That's all we need is another magic trick."I believe OXY has found at least one "magic trick" already and that trick is CO2 Enhanced Oil Recovery (EOR)for the Permian shales.
Vicki Hollub makes the following comment in the video I posted:
https://vimeo.com/810645111(38:15 min)
Question: About Permian and other shale plays having a short life cycle (rapid shale oil well declines).
Vicki Hollub: The Permian is a shorter life cycle, but we intend to make it a longer life cycle. And the way to do that of course is with CO2. If you look at a shale player today...because this is how we look at our assets in the Permian. We've got an inventory of more than ten years (of new well locations) to drill. But what happens beyond that? What do you do if you are a shale player? If you have a five to ten year inventory what comes after the ten years?
And for us what comes after the ten years is CO2 applied to the shale and the conventional (reservoirs). And once you are putting CO2 into the reservoir, then the well decline rates are much different.
There is hardly any decline. Our conventional (reservoir) assets decline at about 3-4%. So, we are going to turn our Permian (shale) high decline high return into a low decline but solid return asset over time. When people start thinking the industry goes away in ten years, there are going to be some companies, some assets and some countries that are going to remain to continue beyond that.
And that's where we'll be. Because you're going to be able to almost double (oil recovery), not quite ...Our technical people have run pilots putting CO2 in the shale that have indicated we're going to get 8% more out of the shale than we would not have without using the CO2." Essentially, she's saying that CO2 EOR will allow the company to increase shale reserves by 80%, assuming a 10% recovery factor from a shale well on primary depletion. As far as I know, these potential additional CO2 EOR reserves do not appear on OXY's reserve books yet. Think of what the value of the company would be if you could increase a company's Permian shales reserves by 80% overnight. I'll guarantee that Vicki, Warren and Charlie have run the numbers and that's why they are buying stock aggressively at these share prices.
While CO2 EOR has been applied successfully to conventional (high permeability) reservoirs in the Permian since the early 1970s, it has not been deployed on a large scale to the unconventional shale (lower permeability) reservoirs. The beauty of CO2 EOR is that new wells do not need to be drilled to implement it. Existing wells and infrastructure are used to inject the CO2 and then the well is turned back on line to production after a CO2 soak time. Capital requirements in the CO2 EOR stage of production will be much less and therefor the return on incremental barrels produced will be much higher.
https://www.researchgate.net/figure/Schematic-of-t...From the video Vicki confirms that small scale test pilots have already been run to prove the viability of CO2 EOR for the shale. Implementing small scale pilots is necessary to able to book reserve increases on a large scale across the asset.
An excerpt from an SEC website
"If an improved recovery technique which has not been verified by routine commercial use in the area is to be applied,
the hydrocarbon volumes estimated to be recoverable cannot be classified as proved reserves unless the technique has been demonstrated to be technically and economically successful by a pilot project or installed program in that specific rock volume. That demonstration should validate the feasibility study leading to the project."
https://www.sec.gov/divisions/corpfin/guidance/cfo...Look for OXY's (and other company) shale reserves to increase dramatically over time. Given OXY's existing conventional CO2 infrastructure and expertise, I would expect them to have a distinct advantage.
I would also think OXY (and other companies) with deep pockets will look to acquire assets with the thought of applying CO2 EOR to increase reserves in the future. Many of the small to mid size companies don't have the expertise or the scale to implement it. Wonder if maybe Berkshire could provide capital to fund some of those projects/acquisitions while companies like Blackrock discourage further investment in "dirty" oil and gas.
No. of Recommendations: 1
Sounds like EOR is not the only way to extend the life of a shale well:
https://oilprice.com/Energy/Energy-General/ExxonMo...Luckily, the U.S. Shale Patch won't have to wait for Exxon to perfect its new fracking technologies. There's already a proven technology for oil producers to return to existing wells and give them a second, high-pressure blast to increase output for a fraction of the cost of finishing a new well: shale well refracturing.
Refracturing is an operation designed to restimulate a well after an initial period of production, and can restore well productivity to near original or even higher rates of production as well as extend the productive life of a well. Re-fracking can be something of a booster shot for producers--a quick increase in output for a fraction of the cost of developing a new well.
While refracturing has never really gone mainstream, the technique is seeing higher adoption as drilling technology improves, aging oilfields erode output, and companies try to do more with less. According to a report published in the Journal of Petroleum Technology, new research from the Eagle Ford Shale in south Texas shows that refractured wells using liners are even capable of outperforming new wells despite the latter benefiting from more modern completion designs.
JPT also estimates that North Dakota's Bakken Shale straddles some 400 openhole wells capable of generating an excess of $2 billion if refractured. Mind you, that estimate is derived from oil prices at $60/bbl vs. this year's average oil price of almost $90/bbl. According to Garrett Fowler, chief operating officer for ResFrac, a refrac can be up to 40% cheaper than a new well and double or triple oil flows from aging wells.
