Consolidated Losses?
An article on oilprice.com offers a timely snapshot of current sentiment in the Permian. Exxon, Chevron, and ConocoPhillips are now positioning their post-consolidation performance as proof of a new operating model. The passage that drew my attention is noted in my references annotations:
Production climbed 400,000 bpd year-over-year even with WTI dipping below $60. Rig counts fell 15%, yet output still increased. The Permian isn’t following the old rules because its operators aren’t playing the old game.
The narrative is familiar: a shift “from wildcatters to industrialists,” with legacy shale developers displaced by super majors armed with scale, laboratories, and shareholder discipline. The majors highlight lighter proppants, AI-directed laterals, multi-well simultaneous fracs, and steady break evens in the $30–$40 range. Their messaging frames the Permian as a low-cost, long-lived franchise—hardly the conduct of firms preparing for decline.
I remain unconvinced.
Our long-standing critique at People, Ideas & Objects is that the industry continues to confuse technical execution with running a business. The commentary celebrates field-level efficiencies while ignoring the commercial realities that determine whether these operations create economic value. The super majors once dismissed shale as a short-cycle anomaly, then declared it fundamentally uneconomic, and then pivoted to “clean energy transition” narratives. Now they’ve returned with the latest story line as a consolidation strategy. At least for now...
The numbers don’t add up. The article acknowledges that the acquired producers carried roughly $80/boe break evens. These companies were purchased in the public markets—often at premiums of roughly 10%. That implies an entry cost closer to $88/boe. Even allowing for higher volumes, a 400,000 bpd uplift is insufficient to credibly compress break evens to $30–$40. The arithmetic does not reconcile. Yet these claims are presented as though cost structure simply resets upon consolidation.
As we noted recently, break even costs embed losses—un-recovered costs between realized revenues and break-even—back into the reserve base. Under current pricing, this dynamic pushes roughly an additional $30/bbl into the break even cost structure for every incremental barrel produced. Those costs must ultimately be recovered within the life of the reserves to avoid uneconomic outcomes and stranded investment.
Shale amplifies this problem. High initial volumes, steep decline curves, significant drilling and completion costs, and recurring redevelopment requirements compound the accumulation of capital that must be recovered later. Production front-loads the barrels but not the full cost. Remaining reserves then require new capital—new laterals, new fracs, new infrastructure—adding layers of un-recovered costs that linger until the Ceiling Test forces a reckoning. The SEC’s Ceiling Test exists precisely to ensure that booked reserve value does not exceed actual economic value. Its purpose is to strip un-commercial barrels off the balance sheet.
This is why I struggle with the celebratory tone around Permian “industrialization.” Technical gains are real, but they do not override the underlying commercial model. Until the industry manages itself as a business—not merely an engineering challenge—the structural economics will continue to be misrepresented, deferred, or pushed onto an ever-growing reserve base that ultimately cannot support them.
The majors can consolidate operators. They cannot consolidate losses.
