Shale Oil hopes to Replicate Shale Gas Boom

As the U.S. shale gas revolution enters its third year, companies are making big bets to try to recreate that success with the billions of barrels of oil locked in the sedimentary rock even though geologists doubt the actual production potential.

New technology has enabled companies to extract gas from previously uneconomic shale plays, triggering a boom in production that has driven down prices in the giant U.S. energy market and triggering a spate of takeovers by oil majors eager to get in on the action.

The less publicized success story has been booming oil production from shale plays like the Bakken formation in North Dakota. In the course of three years, oil production in the state’s Bakken formation has jumped more than 20 fold to 135,000 barrels per day in 2009 from recoverable reserves now estimated at nearly 4 billion barrels.

As things stand, the Bakken play is the only proven and successful source of oil from a shale formation, but independent producers are fanning out to other shale formations in search of similar gains.

Now, independent oil companies are hoping to replicate the Bakken boom in shale deposits like the Niobrara area in Colorado, and the Barnett and Eagle Ford plays in Texas.

“There’s been a bit of a land rush in places like the Niobrara. There have been rumors which were later confirmed that a few companies have had success with their test horizontal wells there. So companies are scrambling to add more acreage,” said Kenneth Carroll, analyst at Johnson Rice & Company.

It started in the Bakken, a rich shale formation spread over Montana and North Dakota that was originally estimated to hold only 150 million barrels of recoverable reserves.

“Bakken has been a real blessing,” said Harold Hamm, chief executive of Continental Resources (CLR.N), which saw its Bakken output jump 37 percent jump in the second quarter versus 2009.

“It is very large, onshore and in the U.S. We’re going to be drilling there for the next ten years,” Hamm added.

Independent producers are now rushing to grab land in Texas and Colorado.

Continental Resources, which claims the largest acreage in Bakken at close to 800,000 acres, recently bought more than 59,000 acres in the Niobrara outcrop in Colorado and Wyoming.

EOG Resources (EOG.N), the largest producer in Bakken, at close to 28,000 barrels a day, is already in Niobrara. The company owns four rigs on 400,000 acres of land in the play although it hasn’t started production yet. Noble Energy (NBL.N) is the most active in this play, having drilled seven wells on 750,000 acres.

EOG’s more dominant presence, however, is in Eagle Ford, Texas, the next hottest play in the crude oil and liquids market, where the company owns at least 580,000 acres of land, runs five rigs and hopes to add seven more by the end-2010.

Still, geologists aren’t convinced that these new hot spots can replicate Bakken’s success.

“The Niobrara play is very similar to the Bakken in many respects, but it’s too early to tell how productive it is going to be,” said Vince Matthews, director of Colorado Geological Survey. “I doubt that it’s as good or better. We won’t even see it as a blip on the decline in production for the whole nation.”

The geology of the Eagle Ford and Barnett plays has even less resemblance to Bakken’s, although the Texan plays have substantial proven good gas reserves.

“We’ve only seen sporadic well-testing in the newer plays so we don’t know if they’ll be successful. The rocks in these formations are different and we’re not sure if the technology can be applied wholesale,” said Phani Gadde, an analyst at Wood Mackenzie.

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Posted by admin on August 21st, 2010. Filed under Barnett Shale, Eagle Ford Shale, Niobrara, Shale Basins, Shale Gas. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry