In 2018, business writer Bethany McLean predicted in her book, "Saudi America: The Truth About Fracking and How It's Changing the World," that due to the emergence of unconventionals, the U.S. would become as big an oil producer as Saudi Arabia.
McLean was right.
"It is really amazing to see what this industry has done," said Joe Gatto, president, CEO and director of Callon Petroleum. "OPEC tried to break the back of shale. We countered with tremendous innovation over time, and we were able to grow through this period."
Forecasting into 2025, Gatto said he expects success to continue with additional growth from the Eagle Ford, Bakken and the Denver-Julesburg legacy basins.
"They're still important contributors, and they're not going away," Gatto said.
Legacy basins, Gatto explained, are plays characterized by production nearing or past peak and thus considered less favorable for shale or stock picking.
"The Eagle Ford and the Bakken basins continue to deliver very solid returns, but are moving into different phases of their maturity cycles," Gatto said at a recent Leaders in Industry Luncheon held in Houston.
"They are still very good basins and offer great opportunities, but we have to think about what it means to be successful," Gatto said. "The Permian, where Callon is focused, is certainly a big driver for the foreseeable future, based on our estimates."
Basin maturity progression, Gatto noted, provides an opportunity for productivity improvement in execution.
Shale growth continues to surprise
In 2018, shale growth "surprised to the upside," Gatto said, and is expected to remain above 1 million barrels of oil per day throughout 2020, at least.
"We are still seeing good flow, and growth is still impactful," Gatto confirmed. "A million barrels-plus growth is impactful.
"I don't see any near-term indications of basin maturity here around shales."
As measured by the S&P 500, energy and technology are historically both high-volatility growth types of industries, "but that has certainly changed over the last 10 years," Gatto said.
"Technology application is critical as evolution continues," he continued, emphasizing technology has enabled the industry "to go in and get more out of the rock."
"Energy was close to 20 percent of the S&P 500 10 years ago. Now we're down to 6 percent," he said.
Technology, conversely, has gone the other way.
"Technology has told a better growth story. It has had better returns on capital, and [in terms of] personal portfolios, there's a lot of passive index investing versus stock-picking going on," Gatto said. "There is a lot of noise about energy right now, as we are trying to transition this business to be more capital-return oriented. There's been a technical shift in capital here that is real."
Recognizing the changing landscape and dynamics, Gatto said, the industry must continue to focus on increasing returns.
"We are drilling longer laterals in the interest of capital efficiency at this point," Gatto said, warning that drilling a 10,000- foot lateral will not yield twice the production of a 5,000-foot lateral.
Overall, well productivity "is hanging in there pretty well," Gatto concluded.
"Permian oil productivity per well is increasing on an absolute basis with longer laterals," he said. "We've seen them move up over this period of time, going into 2018. It's starting to level off a little bit, but it's still increasing."
The Leaders in Industry Luncheon is presented by the Independent Petroleum Association of America, Texas Independent Producers and Royalty Owners Association and Houston Producers Forum.
