Texas’s Amazing Shale Oil And Gas Abundance

I’m often asked my opinion on what the prices of oil or natural gas are going to do. My answer is always the same: If I had the slightest idea what the prices of oil or natural gas were going to do in the future, nobody in my family would ever have to work another day in their lives, because I would quickly become fabulously wealthy.

 

Seriously, nobody knows what the price of these commodities is going to do six months, a year, two years from now. Or even tomorrow, for that matter.

But here’s what we do know: Texas has an amazing volume of both commodities underneath its soil in various shale formations around the state. From the Barnett Shale in north Texas, to the Haynesville Shale in East Texas, to the Eagle Ford Shale in South Texas, to the Cline and Wolfcamp Shales in West Texas’s Permian Basin – Texas is swimming in recently-discovered oil and natural gas reservoirs.So abundant are the resources in the Lone Star State that, as of June 27th, there were 843 oil and natural gas drilling rigs operating in Texas, representing an amazing 48% of all the rigs operating in the United States. Even more amazing, that number represents 26% of all the drilling rigs operating anywhere on the face of the earth!

Today, Texas produces more than 30% of America’s oil and natural gas. If Texas were a country, it would be the third largest natural gas producing nation on earth, and the 13th largest oil producer. Prior to the late 1960s and the growing influence of OPEC, Texas produced so much oil that it was able to heavily influence the price of the commodity on the world market. As the Eagle Ford production continues to grow and the massive potential of the Cline Shale begins to be tapped in earnest, the state could find itself once again in a position of global pricing influence.

Home to more than 260 of those active drilling rigs, the Eagle Ford continues to amaze analysts with the rapid nature of its growth. March 2013 daily oil production from the play grew to more than 529,000 barrels, a 77% increase from just one year earlier. Scott Hanold, an analyst for RBC Capital Markets, told his clients that “While the trend is correct, we believe actual production in the Eagle Ford is higher than what is being reported.” RBC’s proprietary database reportedly pegs Eagle Ford’s oil production as high as 800,000 barrels per day, in basically the same range as North Dakota’s Bakken Shale. Regardless of which number is more accurate, there is no question that Eagle Ford will overtake the Bakken in the next several months to become the largest oil producing field in the U.S.

Meanwhile, the Permian Basin, which as recently as 6 years ago was thought to be a dying province for oil and gas production, continues to rebound in dramatic fashion, and is now home to more than 500 active rigs. According to a recent report put together by the Independent Petroleum Association of America, “Production in the Permian Basin reached about two million barrels per day in the early 1970s, declined to 850,000 barrels per day in 2007, but has since rebounded to 1.3 million barrels per day.”

The report goes on: “The potential of multi-stage fracturing in both vertical and horizontal wells has recently attracted a revival of activity to the Permian. There are currently almost 500 rigs active in the region, which makes up more than a quarter of the U.S. total. Of the rigs active in the Permian, nearly 40 percent are drilling horizontal wells, particularly in the Delaware Basin, double the share of two years ago. Vertical drilling is still very strong – more than 6,000 Wolfberry wells have been drilled within the last 10 years, according to the Texas Railroad Commission.”

All of that dramatic increase in activity and production has taken place while what many believe to be potentially the biggest oil shale in the U.S. – the Cline Shale – has barely begun to be tapped. The Cline is an enormous underground structure, averaging about 70 miles wide from east to west, and about 140 miles from north to south, with a target zone for oil production that is between 200 and 500 fee thick. Because it partially underlies the Wolfcamp Shale to the West, some companies are drilling wells with dual completions in each formation.

Activity in the Barnett, Haynesville and the dry gas window of the Eagle Ford has recently been slow due to low prices for natural gas. But make no mistake about it: the gas is still there in enormous quantities, and whenever the commodity price does move back up into a more healthy zone – which it inevitably will – we will see many more natural gas rigs come on line in Texas and elsewhere to begin tapping it once again.

Because the one thing we do know for certain about oil and natural gas prices is that they are cyclical in nature. That is the way it has always been, and you can bet the family farm it will never change.

It’s just one of so many factors that have always made the oil and natural gas industry one of the most interesting to be involved in. The next 20 years or so may well become the most exciting time the industry has ever seen, and I just hope I live long enough to see it all play out.
God Bless Texas.

Forbes