Unconventional and conventional plays go head to head in a recent Wood Mackenzie report. The consultancy gathered data on 300 shale and deepwater assets to assess how these perform and impact E&P portfolios. WoodMac cautions that this cannot be settled with easy comparisons because there is no such thing as a 'typical' shale or an 'average' deepwater discovery, yet there is much to be learned from the economic record of the most significant recent unconventional and conventional asset investments.
In terms of large-scale resource potential, unconventionals continue to surpass expectations. The new Shale Gas/Tight Oil (SG/TO) projects represent approximately 54 billion boe in commercial and technical resource potential, with deepwater projects providing around half this resource base.
Another major advantage for unconventional plays is that their large acreage footprints can provide decades of drilling inventory, giving companies line of sight across a long horizon of growth. Within WoodMac’s data set of assets, only 15% of deepwater projects provide two or more decades of investment while multi-decades of drilling is nearly twice as common within SG/TO at 27%.
Returns are highly variable across acreage and projects, regardless of resource type, so it is harder to say whether one or the other is more profitable.
The findings also reveal several high-return SG/TO positions that represent the best 'sweet spots' which are receiving a disproportionately large share of investment. There are many high-return deepwater projects too, but these are typically smaller tie-back fields that do not represent big material investment opportunities.
Unconventional assets usually compare favorably in terms of fast production growth, which can offset capital requirements but are less robust in terms of value. With lower revenues and costs at the same or higher levels, profit margins for SG/TO projects are squeezed relative to deepwater. Moving forward, unconventional margins may improve as the industry continues to innovate, driving down costs or increasing recoveries per well.
Given these complexities and the varieties of asset types available, it's clear there is a wide range of rewards from unconventional and conventional opportunities and it is impossible to reach any neat generalized conclusions.
There is no clear winnner, rather companies should identify and prioritize their portfolio needs and have a clear rationale for each resource theme. Business developers and new venture teams should search and screen for opportunities that best meet those needs and evaluate options using the most appropriate metrics that align with their strategy.