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Buy what the majors neglect
Why majors sold
The incentives at the major oil companies point toward huge discoveries, the power-law finds that make a company's year. Small wells with the infrastructure already in place go uninvested. As fields deplete, the large integrated companies also look for cost reduction and cash to redeploy toward larger reserves, so they limit exploration spending and turn their attention to new virgin opportunities in a worldwide portfolio. That made them willing to sell.
Apache's shift to buying
Apache bought from Shell, Mobil, Texaco, and other majors on those terms. The strategy demanded more scale, because Apache now had to operate as an oil company living on the cash flow of wells it owned and ran for its own account. Its main focus shifted from drilling to acquiring assets with upside potential, through what it called acquire and exploit tactics.
The corn field line
A reporter asked why Apache expected to make good money on older Texaco properties that had been producing for years. Plank replied that the company was a bit like pigs following cows through a corn field: the scraps are pretty good for a company with its strategy.
Why do majors sell their mature fields?
Majors compare every project against the best use of their capital anywhere in the world, and a field producing a few hundred barrels a day rarely competes. Overhead built for giant projects also makes small properties costly to run. Smaller independents with lean staffs can operate the same wells profitably. Output from a typical well falls steeply in its first years and then declines slowly for decades.
How do old wells keep producing for decades?
The US Department of Energy says primary recovery, which relies on natural reservoir pressure and pumps, typically yields about 10 percent of the oil in place. Secondary recovery, such as injecting water to push oil toward the wellbore, can raise the total to between 20 and 40 percent. Enhanced oil recovery using steam, gas, or chemicals can lift it to between 30 and 60 percent. Waterflooding, the most common secondary method, has been used in US fields since the late 1800s.
Why do majors chase giant discoveries?
Oil companies deplete their reserves every time they produce, so they must find or buy new reserves just to stay the same size. Investors track this with the reserve replacement ratio, which compares reserves added in a year with the volume produced that year. A company producing millions of barrels a day needs very large fields to keep that ratio near or above one. A small field adds too little to register at that scale.
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