Well, Exxon purchased Pioneer not for $50, but $60 billion. Phew! The price of oil goes up ever quicker these days. The WSJ has a ridiculous propagandist editorial that starts with, “The way to read the deal is as a bet on U.S. shale fracking and hedge against the left’s anti-fossil fuels policies.”
The left? I don't know, look as I may, I have a hard time finding a left these days, or even an idea as to what it’s suppose to represent, maybe remnants of the Culture Revolution I guess, but they’re busy eating themselves at this point, such is the fate of most revolutions, Nonetheless, the Journal’s editors have Exxon fighting for truth, justice, and with little doubt in regards to oil, the American way.
Justice is pretty difficult to find in any financial affairs these days. The truth part, well, the Journal piece is more than a little iffy, starting with, “Wildcatters pioneered hydraulic shale fracturing, aka fracking, and horizontal drilling some two decades ago.” Truth is fracking and horizontal drilling have been around for a lot longer than two decades. On horizontal drilling, the North Dakota Department of Mineral Resources, who know a thing or two about the subject write,
“The first recorded true horizontal oil well, drilled near Texon, Texas, was completed in 1929. Another was drilled in 1944 in the Franklin Heavy Oil Field, Venango County, Pennsylvania, at a depth of 500 feet. China tried horizontal drilling as early as 1957, and later the Soviet Union also tried the technique. Generally, however, little practical application occurred until the early 1980s, when the advent of improved downhole drilling motors and the invention of downhole telemetry equipment, made the technology commercially viable.”
While on fracking, the American Society of Mechanical Engineers write,
“The first industrial-scale commercial uses of the modern patented “Hydrafrac” process in 1949, with Halliburton holding an exclusive license in the early years. SPE recounts that 332 wells were fracked in the first year alone, with up to 75 percent production increases recorded. By the mid-1950s, fracking hit a pace of about 3,000 wells a month.”
I guess the Journal's practicing that old American tradition put forth by the newspaperman in The Man Who Shot Liberty Valance, “When the legend becomes fact, print the legend.”
The real whopper the Journal writes, “The Permian is among the lowest cost drilling regions in the world and can turn a profit even with oil at $35 a barrel.” Oyyyyyyy, let's put it this way, there may be a few, very few, holes in the Permian putting out oil at $35 a barrel, but the fact is the Shale Revolution’s had a hard time over the last 15 years making a profit when oil's at $100. As far as “among the lowest cost drilling regions,” I guess the Journal didn't read the Aramco Prospectus from just a few years ago, (but then who did?), where the Sauds claimed they're pumping oil out of the ground at $2.8 a barrel or is it, as they write in just the next sentence, “$4.7 a barrel following the Industry Consultant's methodology.” Lord, what a hoot, they even capitalize “Industry Consultant.”
But Joe, the Sauds wouldn't lie and look at all those banks underwriting the IPO — Citi, J.P. Morgan, BofA, Goldman, Credit Suisse...., um ok, maybe Credit Suisse isn’t a good reference. Surely such assurances on the Sauds’ numbers are good as gold?
Anyway, the Journal does get to the heart of the matter, “The acquisition is a response to higher interest rates that are raising the cost of capital for smaller producers, as well as to a hostile regulatory environment making it more difficult to explore and develop new resources.” Yes indeed, discovery of new oil is becoming ever more expensive with the amount of oil found declining each year, a trend now well over a half-century in place. At the same time, global oil consumption increases each year. The regulatory environment has little to do with it, there simply ain't no more cheap oil to be found, hence Exxon's quite expensive, in historical terms, shale deal.
The most accurate thing the Journal writes is higher interest rates are raising the cost of capital, but they leave out that if hadn't been for unprecedented, over a decade, zero interest rates, most of the oil the revolution produced would still be in the ground. A few years back when the old majors started getting, or more accurately getting back, into shale, a wag amusingly commented, “That's good, they have a lot of cash.”
Finally, the Journal writes, “The merger would more than double Exxon’s current Permian production and nearly quadruple it by 2027.” If you can get a line on that, take the under.
funny piece thanks joe