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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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The Stealth Shale Gas Company

A lot of companies have been rushing to get into shale oil and gas plays the last few years.

But apparently at least one major has been in the business for a lot longer than anyone thought. Over a decade.

This week, Occidental Petroleum surprised a lot of onlookers by announcing at an analyst meeting that the company is in fact a sizeable player in shale. In California of all places. (Thanks to Toby Shute, intrepid Motley Fool correspondent, for the heads up.)

Oxy told analysts the company is the largest operator of "unconventional" shale projects in the state of California. Apparently the company's shale activities here date back to 1998.

Although a little scant on details about the target formations, Oxy's numbers are impressive. The company noted that it produces 40,000 BOE/day from shale wells. Much of this is oil or liquids.

In fact, shale production accounts for 25% of Oxy's total California output. The company owns 870,000 acres with shale potential, and is reportedly planning the largest 3D seismic survey in Californian history to identify shale "sweet spots" on this land. The plan is to drill 10 to 15 test wells per year.

This is surprising news, to say the least. There's been very little discussion of shale hydrocarbon potential in California. And certainly few analysts realized Oxy was so focused on such plays.

Whether these are true shales or more like the sand/shale packages of the Bakken formation in Saskatchewan, Montana and the Dakotas is unknown at this point. Although I would suspect the latter.

But in either case, this is one more illustration of the power of unconventional drilling and completion techniques to open up new reservoirs. The North American oil and gas business is going through a renaissance. There are hundreds of hydrocarbon-bearing formations previously thought too tricky to drill that are now getting a second poke.

(I've been hearing that a recent jump in land sale activity in southern Alberta was touched off by speculation that the Exshaw shale may be an economic oil target, perhaps equivalent to the Bakken.)

Of course, the proof for all of these plays will be in the production. Only after wells have been on pump for a few years will we get a good handle on decline curves, net present values and return on investment from these plays.

Some will turn out to be money-makers. The Eagle Ford of Texas looks like it's going to be a staple for the industry from here on out. Others will produce hydrocarbons but little profit, as high drilling costs overwhelm sub-par output.

It'll be interesting to see where the winners are.

By. Dave Forest of Notela Resources




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