International shale skepticism

March 2, 2015
For nearly 2 decades, North America-the US and Canada-has seen an increase of natural gas and oil reserves through application of new technology in unconventional plays.

Tayvis Dunnahoe
Exploration Editor

For nearly 2 decades, North America-the US and Canada-has seen an increase of natural gas and oil reserves through application of new technology in unconventional plays.

As early as 2005, Oil & Gas Journal cited the importance of unconventional gas to US supply (OGJ Online, Feb. 28, 2005). At that time, the Barnett shale formation was the biggest news for unconventional resources, and US gas production was expected to rise to more than 10 tcf/year from 5 tcf in 2000.

By 2012, US gas production exceeded 29 tcf, according to the US Energy Information Administration. That same year, analysts predicted US liquids production could lead to net zero imports by 2020 (OGJ Online, May 28, 2012).

International aspirations

The success of North American unconventional resource development has continued to build through the discovery of new and productive plays. Development of new technology, access to acreage, and financial incentives for both operators and land owners also have facilitated growth in economies of scale. Recent reports have underscored that companies have tightened exploration budgets in view of the current economic climate. In the US, unconventional operations can easily ramp up again in the event of sustained oil prices.

In Europe, Asia, and South America, the unconventional development that has proven North America's abundant reserves serves as a worthy goal. Exploration companies and governments have sought to replicate this development success outside of North America. Each region faces its own challenges, but shale resources exist on a global scale.

As an editor for OGJ, the term "international shale" tends to pique one's skepticism. Primarily, results are required to validate a real news story.

Poland's Baltic basin offered some hope for a European answer to the Barnett in 2009 but the basin has since proven difficult to commercialize (OGJ Online, Sep. 10, 2009). As of Jan. 31, Chevron Corp. joined ExxonMobil Corp., Total SA, and Marathon Oil Corp. in the roster of majors that have pulled out of Poland's nascent shale prospect.

In the UK and Scotland, moratoria have dampened the possibility of unconventional exploration. In all, 21 shale wells were drilled in Europe in 2014 according to Wood Mackenzie's international shale report published in January. While Europe's prospects are slim, there are successes in other regions.

Price of progress

In the US and abroad, unconventional wells are historically more expensive. Due to the specialized technology required, non-North American shale expertise also can be in short supply in other global regions.

More importantly, sustained high prices for oil have assisted many operations in maintaining profitability.

At its high point in 2014, oil rallied at $115/bbl in June before taking a precipitous dive to its lowest price of $44/bbl in January. Prices have risen slightly through February, but it is unclear where this will lead through 2015.

While international shale continues to be a goal for many regions, WoodMac reported that exploration companies drilled 620 shale wells in 14 countries in 2014. Argentina and China accounted for the largest share of new drilling with 340 and 160 wells, respectively. Australia, Russia, and Saudi Arabia saw considerable activity with each country ranging 20-30 new shale wells. Unconventional exploration entered a handful of other regions in 2014, but there were fewer than 10 wells drilled in most cases.

Argentina's Vaca Muerta play was the most heavily drilled international shale play in 2014 with cumulative production reaching almost 40,000 bo/d by yearend.

Activity indicates that Argentina and China will continue to expand their unconventional development as both countries are motivated to increase supply. The tangible progress seen in these two countries is partially the result of government-regulated commodity prices. "This somewhat insulates these operations from the massive price swings we've witnessed over the past 6 months," said Robert Clarke, research director, global unconventional oil and gas, WoodMac.

Given this challenging price environment, international shale exploration is expected to slow even further in 2015, and the loss of momentum will be detrimental. According to Clarke, "A pause in activity for the next 2 years could delay eventual commercial production on non-US shale assets by a decade."

Skepticism may be the best approach to international shale development in many areas.