Oil is increasingly becoming the focus of North American shale explorers and producers and juniors in this space are going where the money is.
Much has been made about North American shale gas and how it has proven to be a game changer, satisfying most if not all of the continent’s gas demand and all but extinguishing liquefied natural gas (LNG)import plans.
However, its very success seems to be a double edged sword.
The resulting gas glut has resulted in U.S. Henry Hub spot prices currently hovering about US$2.50 per million British Thermal Units (MMBtu) – roughly 1000 cubic feet of gas, a far cry from the $US4.50 per MMBtu price that gas was asking for at the beginning of 2011, and a level which some believe is so low that producers are losing money on marginal shale gas fields.
Indeed, BHP Billiton (ASX:BHP) is now flagging that it will cut back on gas exploration and development and focus on oil.
BHP had last year spent almost US$20 billion on acquiring shale gas, first snapping up Chesapeake Energy’s acreage in the Fayetteville Shale for US$4.75 billion in February 2011 before committing itself to shale with its US$15 billion acquisition of Petrohawk Energy in July.
The high prices paid by BHP in its shale investments were questioned by major investors with some feeling that the world’s largest miner had come a bit late to the party.
BHP itself has admitted that gas prices ranging from US$3 to US$4 per 1000 cubic feet are required to break even at the average well in the Fayetteville and Haynesville shales though the company claims it holds the thickest, most productive shales in those areas with slightly better economics.
The light at the end of the tunnel appears to be the oil-rich Eagle Ford Shale and Permian Basin acreage. Oil after all is still trading close to US$100 per barrel, allowing shale oil producers to maintain a healthy margin.
Going for the oil
It is little wonder the junior oil and gas companies are also targeting oil with their unconventional gas efforts in the U.S..
Empire Energy Group (ASX:EEG) is waiting on New York State’s Department of Environmental Conservation to begin issuing new permits for fracture stimulation work once it completes a review on fraccing.
This is expected in Spring this year, allowing Empire Energy to access the estimated 70.3 million barrels of oil on its Marcellus shale acreage, which covers (890.3 square kilometres)220,000 acres.
Meanwhile, Sun Resources (ASX:SUR) is moving closer to completing its acquisition of the Delta Oil Project in the Eagle Ford, Texas.
While the company has since flagged it might stop short of the 10,000 acres it had originally planned to acquire, it has already secured 6803 acres of the project.
Delta Oil has estimated unrisked net prospective oil resources of 10 million barrels in one sand unit with potential upside to increase this by up to 200%.
Over in the Mississippi Lime play, World Oil Resources (ASX:WLR) is preparing to fracture stimulate and test the first modern horizontal well on the Welch-Bornholdt Wherry (WB-W) field in Rice and McPherson counties, Kansas.
This promises both greater production and oil recoveries compared to historic wells drilled in the area.
Other players include Red Fork Energy (ASX:RFE), which is embarking on an aggressive program in Oklahoma, and AusTex Oil (ASX:AOK).
Gas future
Despite the general move towards liquids-rich shales, shale gas still has a future and may yet make a recovery.
BHP believes it is a matter of time and that the U.S. will make increasing use of gas, driving gas prices up to economic levels.
It adds there would also be increasing pressure to export U.S. to Asian or European markets in the form of LNG.
This gas future might not be far off as can be seen in PetroChina’s acquisition of a 20% stake in Shell’s Groundbirch shale gas project in Canada.
While Groundbirch, which produces 1 billion cubic feet of gas equivalent per day, will continue to meet customer demands in North America, the Chinese energy giant has clearly stated that it is looking into LNG export opportunities, presumably to meet growing demand back home.
US independent Apache Corporation (NYSE:APA) is also reportedly set to go ahead with developing its Kitimat LNG plant in British Columbia soon, a project that had originally been intended as an LNG import terminal.