The much-heralded “energy renaissance” that is projected to lift the US into the position of the world’s largest producer and exporter of oil and gas before the end of the decade has become a familiar trope in much of the discourse about the global energy economy.
Relatively recent advances in exploration and drilling technology have provided the structural foundations for momentous changes of an industry-wide scale. Substantial leaps in 3D seismic imaging capability have revealed to the US that it had far more oil and gas than had previously been imagined, while the refinement of hydraulic fracturing and horizontal drilling technologies has provided the means by which to access these new and, by most accounts massive, reserves hidden inside shale formations beneath the earth’s surface.
America On the Road to Energy Independence
Indeed, the “shale boom” is perhaps one of the most commonly employed of the various shorthand expressions used to describe the phenomenon that has been taking shape, and is to a great extent backed up by the data. For instance, Ernst & Young estimated last yearthat among the 50 most active US drillers, investment in shale-based reserves ballooned 20 percent between 2011 and 2012 to $186 billion. With domestic oil production about 43 percent higher than it was in 2008, the larger picture would appear similarly optimistic.
A few other facts contribute to a strong argument in favor of the move towards shale. Much like the human brain, the US is producing energy from shale reserves at some 10 percent of the country’s estimated capacity. At the same time, the nation is clearly better-equipped than perhaps any other to ramp up production, with around 95 percent of all existing rigs capable of performing the horizontal drilling so crucial to the unlocking of shale reserves, well ahead of any other nation.
Enthusiasm, Tempered with Caution
Despite the near-continuous procession of bullish sentiment on US and North American shale, supported as it is by what looks like irrefutable evidence, investors would do well to approach this, or anything else bearing the label of “boom,” with caution.
Those who have been more skeptical of claims about the future potential for shale have pointed to a number of red flags. For instance, the very notion of “reserves” is often more malleable and subject to manipulation when it comes to shale production than even the more traditional forms of crude extraction. This is because shale reserves are substantially less homogenous in nature than other kinds of deposits. The very quality of the deposits referred to as “reserves” varies greatly, and depends on the amount of saleable oil and gas that can be extracted, how much refining it will require to do so, and at what cost.
The uneven geological distribution of shale deposits in terms of breadth and depth means that more wells need to be drilled to access reserves that are far more fragmented. Horizontal drilling has played a considerable role in reducing the costs by allowing drillers to hit multiple spots using only one rig, but shale wells generally operate on shorter life spans and produce less.
The increase in operational expenses is seldom mentioned, but no less real of a threat to the entire shale industry, the majority of which depends on the production of natural gas, which is substantially less profitable than crude oil. This makes shale energy production particularly susceptible to the supply/demand balance, as well as crude price fluctuations, mostly the West Texas Intermediate (WTI) and Brent varieties, though the OPEC basket should never be underestimated.
The outlook for shale will no doubt remain promising, at least for as long as energy consumers can enjoy a discount on the price of benchmark crudes, and there is never a shortage of potential calamities that can send prices skyward. But it is by no means inconceivable that the trend could swing the other way, with lower crude prices resulting in sudden and drastic reductions to the profit margins of smaller firms, who are currently making the best of US shale. OPEC, for example, has grumbled about boosting its crude outputin order to lower global prices, precisely because of the bite that North American energy production has been taking out of its own profits.
Plenty of Room for Profit, for Now at Least
None of this is to throw water on the exponential interest and excitement that has gathered around unconventional energy sources like shale. Irrespective the form and direction taken by the trend, shale plays are undoubtedly here to stay, even if they do not turn out to be quite the holy grail of American energy independence. With this in mind, the following is an overview of the most promising shale plays currently driving US natural gas, and to a lesser extent oil, production to its current levels:
The Marcellus Shale
Location – Appalachian Basin: Ohio, New York, Pennsylvania, West Virginia, Virginia, Maryland
Technically Recoverable Gas: 410 trillion cubic feet
Active Companies: Chesapeake Energy ($CHK), Anadarko Petroleum (APC) , Cabot Oil & Gas (COG) , Carrizo Oil & Gas (CRZO) , Marathon Oil (MRO)
The Utica Shale
Location – Appalachian Basin: Ohio, New York, West Virginia, Virginia
Technically Recoverable Gas: 15.7 trillion cubic feet
Technically Recoverable Oil: 940 million barrels
Active Companies: Gulfport Energy (GLF) , Chesapeake Energy ($CHK), Carrizo Oil & Gas (CRZO) , Chevron Corp. (CVX) ,
The Antrim Shale
Location – Michigan Basin: Michigan, Ohio, Indiana
Technically Recoverable Gas: 20 trillion cubic feet
Active Companies: Chevron (CVX) , Linn Energy ($LINN), Breitburn Energy Partners (BBEP)
The Devonian Shale
Location – Appalachian Basin: Ohio, Kentucky, Tennessee, West Virginia, Virginia, Alabama, Georgia
Technically Recoverable Gas: 14 trillion cubic feet
Active Companies: Range Resources Corporation (RRC) , Consol Energy (CNX) , Rexx Energy Corporation (REXX) , Chesapeake Energy ($CHK), EQT Corporation (EQT)
The New Albany Shale
Location – Illinois Basin: Indiana, Illinois, Kentucky
Technically Recoverable Gas: 11 trillion cubic feet
Active Companies: Approach Resources (AREX) , Carrizo Oil & Gas (CRZO) , Noble Energy (NBL)
The Greater Siltstone Shale
Location – Appalachian Basin: New York, Pennsylvania, West Virginia & Virginia, Ohio
Technically Recoverable Gas: 8 trillion cubic feet
Active Companies: Antero Resources (AR) , Penn Virginia (PVA) , ExxonMobil (XOM) , Anadarko Petroleum (APC)
The Big Sandy Shale
Location – Appalachian Basin: Kentucky, Tennessee, Ohio, Virginia & West Virginia
Technically Recoverable Gas: 7 trillion cubic feet
Active Companies: Spectra Energy Corp (SE)
The Cincinnati Arch Shale
Location – Indiana, Ohio, Kentucky
Technically Recoverable Gas: 1 trillion cubic feet
Active Companies: Chesapeake Energy ($CHK),
The Haynesville-Bossier Shale
Location – Texas-Louisiana Salt Basin: Texas, Louisiana
Technically Recoverable Gas: 75 trillion cubic feet
Active Companies: BHP Billiton (BHP) , Cabot OIl & Gas (COG) , Continental Resources (CLR) , Marathon Oil (MRO) , Matador Resources (MTDR) ,
The Eagle Ford Shale
Location – Texas Maverick Basin: Texas
Technically Recoverable Gas: 21 trillion cubic feet
Technically Recoverable Oil: 3 billion barrels
Active Companies: BHP Billiton (BHP) , BP plc (BP) , Cabot Oil & Gas (COG) , Abraxas Petroleum (AXAS) , Carrizo Oil & Gas (CRZO) , ConocoPhillips (COP) , Marathon Oil (MRO) , Talisman Energy (TLM)
The Floyd Neal & Conasauga Shales
Location – Black Warrior Basin: Alabama, Mississippi
Technically Recoverable Gas: 4 trillion cubic feet
Active Companies: Carrizo Oil & Gas (CRZO) , Murphy Oil Corporation (MUR) , Denbury Resources (DNB) , Range Resources Corporation (RRC)
The Fayetteville Shale
Location – Arkoma Basin: Arkansas
Technically Recoverable Gas: 32 trillion cubic feet
Active Companies: BHP Billiton (BHP) , Anadarko Petroleum (APC) , Antero Resources (AR) ,
The Woodford Shale
Location – Ardmore & Arkoma Basins: Oklahoma
Technically Recoverable Gas: 22 trillion cubic feet
Active Companies: Carrizo Oil & Gas (CRZO) , Antero Resources (AR) , Apache Corp. (APA)
The Cana-Woodford Shale
Location – Anadarko Basin: Oklahoma
Technically Recoverable Gas: 6 trillion cubic feet
Active Companies: Newfield Exploration (NFX) , Chesapeake Energy ($CHK), Cimarex Energy (XEC)
The Barnett Shale
Location – Fort Worth & Permian Basins: Texas
Technically Recoverable Gas: 43 trillion cubic feet
Active Companies: EOG Resources (EOG) , ConocoPhillips (COP) , ExxonMobil (XOM) , Carrizo Oil & Gas (CRZO)
The Barnett-Woodford Shale
Location – Permian Basin: Texas (West)
Technically Recoverable Gas: 32 trillion cubic feet
Active Companies: Devon Energy (DVN)
The Avalon & Bone Springs Shales
Location – Permian Basin: New Mexico, Texas
Technically Recoverable Oil: 2 billion barrels
Active Companies: Concho Resources (CXO) , Energen Corporation (EGN) , Chesapeake Energy ($CHK)
The Mancos Shale
Location – Uinta Basin: Colorado, Wyoming
Technically Recoverable Gas: 21 trillion cubic feet
Active Companies: Encana Corporation (ECA) , Black Hill Corporation (BKH) , ExxonMobil (XOM) , Marathon Oil (MRO) , Occidental Petroleum (OXY)
The Lewis Shale
Location – San Juan Basin: Colorado, New Mexico
Technically Recoverable Gas: 12 trillion cubic feet
Active Companies: ConcoPhillips (COP)
The Niobrara Shale
Location – Williston Basin: Colorado, Nebraska, Wyoming, Montana, North & South Dakota
Technically Recoverable Gas: 7 trillion cubic feet
Active Companies: Abraxas Petroleum (AXAS) , Anadarko Petroleum (APC) , Carrizo Oil & Gas (CRZO) , EOG Resources (EOG) , Marathon Oil (MRO) , Noble Energy (NBL)
The Hillard-Baxter-Mancos Shale
Location – Great Green River Basin: Wyoming, Colorado
Technically Recoverable Gas: 4 trillion cubic feet
Active Companies: Marathon Oil (MRO) , Occidental Petroleum (OXY) , Encana Corporation (ECA)
The Bakken Shale
Location – Williston Basin: North Dakota, Montana
Technically Recoverable Oil: 4 billion barrels
Active Companies: Abraxas Petroleum Corp. (AXAS) , BHP Billiton (BHP) , Resolute Energy Corporation (REN)
The Monterrey & Santos Shales
Location – San Joaquin & Los Angeles Basins: California
Technically Recoverable Oil: 15 billion barrels
Active Companies: Occidental Petroleum (OXY) , Berry Petroleum Company (BRY) , National Fuel Gas Company (NFG)
