Back to Volume 4 | Summer 2019

US Unconventional Operators are Leaving Billions of Dollars of Value on the “Factory” Floor

Executive Summary

Over the period 2014 to 2018, US unconventional operators reduced well breakeven costs in response to oil prices falling from a median price of $76/barrel in 2014 to just under $50/barrel in 2018. As oil prices begin increasing again, investors question whether these cost reductions are genuinely sustainable, achieved by long term structural changes or whether they are cyclical in nature, and therefore temporary. An analysis of publicly available data indicates that operators do not have the tight control on operational performance and costs suggested in earnings calls. We show that substantial improvements are possible with a thoughtful application of Project Production Management principles to unconventional onshore field development. Our estimates suggest that unconventional operator could unlock up to $10 billion of cash in their operations, which could be reinvested to $65 billion of potential revenue.

Keywords: Inventory; Work-in-Process (WIP); Variability; Factory; Well Production System

Author: Amanda Goller Director of Analytics, Strategic Project Solutions Inc., agoller@spsinc.net



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