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Page added on April 8, 2014
One in Five Global Shale Basins May Succeed
Only one in five global shale regions may succeed in producing significant amounts of oil and gas as countries from China to Argentina seek to emulate the U.S. boom, said energy consultants Wood Mackenzie Ltd.
Argentina is leading the pack, with plans to drill about 200 shale wells this year, more than three times the number in China, Andrew Latham, Wood Mackenzie’s vice president for exploration research, said in an interview in Perth, Western Australia, where he’s attending an industry conference.
“You hear people talk about lots of different basins,” Latham said yesterday. “It’s all good, but it’s all potential, and I’d be surprised if more than one in five plays that gets drilled ever becomes commercially significant in terms of production. You only get to be one of the five by drilling.”
Shale explorers are targeting China, Russia, Australia, India, South Africa and Argentina in pursuit of deposits similar to those that have revolutionized energy supply in the U.S. Argentina will drill half the shale wells in the world outside the U.S. this year, Wood Mackenzie estimates.
The drilling of “400 wells globally is actually a very small number compared to the several thousand that are getting drilled every year in North America,” he said.
Global spending on oil and gas exploration is forecast to stall at about $100 billion annually over the next three years, increasing the risk for the largest producers, he said.
“When explorers become too timid they end up drilling small, low-risk prospects they can develop quickly, but ultimately that’s a hard way to outperform,” he said. “So the industry retreats to lower-impact exploration at its peril.”
Oil companies from Royal Dutch Shell Plc (RDSA) to BP Plc (BP/) have cut spending to help bolster finances as costs outpace energy prices. Wood Mackenzie’s forecast is based on expectations the oil price won’t change significantly and that some producers will reduce spending on developing shale acreage, Latham said.
11 Comments on "One in Five Global Shale Basins May Succeed"
Davy, Hermann, MO on Tue, 8th Apr 2014 11:40 am
I wonder If any will get off the ground for very long. I wonder if the US can even maintain what it has going with all its comparative advantage. In any case we need everything we can brought on line before it is too late for status quo BAU.
rockman on Tue, 8th Apr 2014 12:03 pm
“The drilling of “400 wells globally is actually a very small number compared to the several thousand that are getting drilled every year in North America”. Apples to oranges comparison IMHO. Nearly all the drilling in the US is for production. The global drilling effort will focus on
“evaluation wells” to determine the productivity of previously untested formation…at least untested utilizing tech as being done in the US today.
Then there’s the question of infrastructure capability. No other country can compare to the US in this regard. While Argentina may be hoping for 200 test wells to be drilled in the future there are only 100 land rigs currently operating there compared to about 1,800 in the US. But it takes much more than drilling rigs to make a shale play work: experienced personnel, frac trucks, chemicals, regional NG pipelines and, most importantly IMHO, a multitude of aggressive independent operators with a significant amount of capex. The disparity in these factors is at least as great as with the rig count. Which isn’t to say a major foreign shale play might not develop but IMHO it would take decades and many $billions in infrastructure improvements to come even lose to what’s happening in the US.
I’m still trying to figure out the implication of this statement: ““When explorers become too timid they end up drilling small, low-risk prospects they can develop quickly, but ultimately that’s a hard way to outperform. So the industry retreats to lower-impact exploration at its peril”. This is essentially what the US oil patch has done by jumping on the shale plays IMHO. Collectively the gains have been impressive but from an individual well standpoint that statement describes the US shale effort perfectly. You can’t get much more low risk then nearly every US shale well being completed and produced. Which doesn’t mean every well is very profitable. Over the short term the US shale plays can give the appearance that they “outperform” but that’s just the result of a continuous drilling effort to replace those rapidly declining wells. In a decade Ghawar Field will likely still be producing more oil than all the shale wells drilled to date COMBINED.
It’s also good to remember the nature of the leaders of the US shale plays: public companies. Pubcos driven by the need to prove to Wall Street they have growth capability. So driven that profitability of the effort isn’t always the only motivation. So if foreign shale developments aren’t led by pubcos but by companies (especially NOC’s) that will drill strictly on the basis of per well profitability, we might not see the gains experienced in the US even if there are comparable shale formations out there.
Nony on Tue, 8th Apr 2014 12:37 pm
The first movers weren’t timid. After all, look at George Mitchel and his 20 years of wandering in the wilderness with the Barnett. Or Hamm (private company) going after the Bakken. Or people who’ve tried the ones that didn’t work (e.g. TMS). It’s about who was shale-y, when shale wasn’t cool. 😉
https://www.youtube.com/watch?v=ZwClj37FN9o
bobinget on Tue, 8th Apr 2014 2:42 pm
I focused on Argentina when Its major, YPF was nationalized. That story is a book length saga of greed, politics, power struggles and of course oil.
When Carlos Slim took a multi million dollar position,
Chevron, Shell followed with 1.2 billion pledged.
That shale ‘play’, Vaca Muerta, won’t be producing for years. AS with China, few expect Argentina to become a shale gas or oil exporter. In the mean time, Chevron
and YPF are increasing conventional oil and gas output.
rockman on Tue, 8th Apr 2014 5:14 pm
Bob – And then there’s the question of who’ll will take a chance on the politics let alone the geology? Some years ago I was approached by a broker who was an insider with the fairly call the shots in the Arg. govt at the time. By changing the regs they had essentially run out all the existing operators except a local company (they would be our “shadow operator”) and confiscated their leases. It was a sweet deal: all I had to do was come up with around $700 million in seed money to get a number of projects started including a plan for NG development. NG supply was a critical problem for the country at that time. The most interesting part of the conversation was his honesty about the need to monetize our profits within several years. It was expected that with the next presidential election TPTB would swap out and the next group would “renegotiate” and screw us out of everything…including his cut. So it was critical that we eventually find someone to take us out and let them get eviscerated by the new govt.
On paper the plan actually looked reasonable. And while I may be one of those lying oil patch bastards this was just a tad too slimy for me so I quickly passed. It’s always amazing the deals you can run into at the right hotel bars in Houston.
shortonoil on Tue, 8th Apr 2014 5:57 pm
It is highly doubtful if Argentina, or any other country in the world, will follow the US lead in shale production. It is not a matter of technology, or asset base, or need, it is that in the US shale producers are now spending $1.50 on drilling cost for every dollar of product produced. This deficiency will no doubt get worse as these high decline rate wells mature. The US [being that it holds the world’s reserve currency] has the luxury of spending $10 – 15 billion per year on attempting to maintain the illusion that it will reach “energy independence” from its shale production. On a $1 trillion annual national debt, it is almost an insignificant number. The political value for the US with its faltering economy, and declining world prestige is worth far more than the pittance that it throws at the shale industry. Don’t expect world shale production to over take the Great Middle Eastern fields, or even compensate for their decline. As David Hughes coined, “it not going to happen”.
http://www.thehillsgroup.org
Boat on Tue, 8th Apr 2014 10:33 pm
shorton oil
so why didn’t the frackers invest in wells in shale at the same pace 20 years ago.
rockman on Wed, 9th Apr 2014 1:34 am
Boat – I’m not sure what you question may be. Actually they did do just that 20 years. The Austin Chalk (the fractured carbonate equivalent of a siliceous shale) was the hottest play on the planet. It was horizontally drilled and frac’d in Texas across an area several times larger then the current EFS play.
And this was second push for the AC: about 14 years earlier it was a big play in NG window where it was drilled vertically and hit with very big fracs. I did my first mega-frac (500,000#) of a similar reservoir in 1979.
But I still contend a big contributing factor (besides $100/bbl) for the shale boom is the lack of enough viable conventional wells for the pubcos. They have to hit the shales hard…they have no other option.
westexas on Wed, 9th Apr 2014 1:29 pm
As overall production is still increasing, the Bakken Play has an average production rate of a little over 100 bpd, with a median production of less than 100 bpd.
I’m puzzled as to how numbers like this are supposed to work in much higher cost operating areas around the world.
rockman on Wed, 9th Apr 2014 3:39 pm
wt – I also suspect that most here don’t realize how much more it typically cost to operate the type of drilling needed to chase the shales in foreign lands. I have very little experience in that area but have many tens of millions just to mobilize the equipment into a foreign arena. And given that’s there’s very little drilling and no frac’ng activity a lot of infrastructure would need to be imported. The more evaluation wells drilled in a short time period would help amortize the cost but even with that I would be surprised if the first 50 to 100 wells drilled and frac’d in a new region would cost at least 2X to 4X as much as the same well would cost in S Texas.
But I have worked enough overseas to know that what might cost $5 million in Texas can $15 million in onshore Africa. And that’s if you were to amortize the mobilization cost across many dozens of holes.
The offshore arena is obvious a very different game. But to give folks a sense of the mob costs: the last DW Brazil well I was involved with was drilled with a rig moved from the west cost of Africa. It cost Devon $5 million just to get the rig to the location before they even set up to drill the first foot.
Nony on Thu, 10th Apr 2014 4:44 am
My reading* indicates that the Austin Chalk was in some ways a laboratory of techniques. But the idea that everything was perfected/known from there and just waited for a price signal seems off.
Also, there’s a lot of ‘we did it in the Chalk’. But my understanding is that the AC was NOT primarily developed with combined horizontal/fracking. Not saying there weren’t a few. But most of the horizontals were unfracked (because system already has a fair amount of natural fractures?) So, it gives a little false impression to think that AC was developed similar to Barnett/Bakken/Eagle Ford.
A lot of geologists and industry professionals discuss evolution of the completion technology. It’s not just business or media idiots. So, the idea that Rockman dictates all…I don’t buy it. These people are guys with many years of drilling too and they know their history.
In some ways its a semantic debate about what’s new (evolutions/improvements).
My laptop is more powerful now than it was in 1986. It’s still sorta similar looking (and in some cases function). But it’s an evolution. I consider it improved technology. ;-O
I think the thousands of shale wells teaches them some things and it wasn’t all known before. The Bakken (and Barnett and Marcellus, etc.) have been laboratories also. There is plenty of learning and development in those plays even looking at pre 2008 Bakken, pre 2004 Barnett and pre 2010 Marcellus versus what they do now in those plays.
For that matter the shale is tighter and has less of an internal fracture system. Shale…chalk…just think about them, which sounds stiff and manly and which sounds like it crumbles in the hand. 😉
*If there’s a good online discussion of the AC boom/development, be glad to read that. I Googled and found this:
http://holifieldoil.homestead.com/FiftyYearHistory.html
Also rely on what was in The Frackers (which says that there was a horizontals boom, but not typically fracked.)