-- Robert Campbell is a Reuters market analyst. The views
expressed are his own. --
By Robert Campbell
NEW YORK Aug 3 One of the big surprises in
recent years for the oil market has been the reversion of the
steady decline in U.S. crude output and the emergence of its
shale sector as a nontrivial source of global supply growth.
New unconventional shale oil plays, such as the Eagle Ford
Shale in Texas, have transformed within a few short years from
highly speculative exploration projects to potentially major
Eagle Ford, which as recently as 2009 was still often
described as a new frontier in natural gas production, is now
seen becoming a major crude oil production center.
Already the area is smashing through output forecasts as
companies lever strong cash flows due to high oil prices to
develop the technical expertise to drill more quickly and
productively into the seemingly prolific play.
Most significantly for the global oil market, the shale
plays have emerged as a source of non-OPEC production capacity
growth. While these crudes will not enter into global trade
flows, they will chip away at North America's crude oil import
Moreover, forecasters are only just getting a grip on the
significance of shale oil. Projections for 2012 output are
being ripped up as productivity in the sector exceeds all but
the most aggressive forecasts.
The International Energy Agency forecast in mid-July that
the United States would produce approximately 7.9 million
barrels per day in 2012, with shale oil driving a modest
increase in production from 2011.
But between June and July the U.S. Energy Information
Administration boosted its own forecast for 2012 liquids
production by a startling 170,000 bpd.
Further revisions may be in the offing. Consultancy Bentek
said last week Eagle Ford output had more than doubled in the
last two months to 160,000 barrels per day and was on track to
grow fivefold by 2015. [ID:nN1E76Q250]
Shale oil shreds US output forecasts [ID:nN1E76R0TI]
Chesapeake adding Utica shale acres [ID:nN1E76S0LU]
Chesapeake presentation: r.reuters.com/syj92s
THE NEXT EAGLE FORD?
Not surprisingly, the bounty at Eagle Ford has set the
industry on the hunt for the next find. Chesapeake Energy
(CHK.N), one of the most aggressive shale developers in the
United States, claims to have it.
The company said its land position in the Utica Shale, a
huge formation in Ohio that extends into Pennsylvania and north
into Canada, could be worth up to $20 billion to shareholders.
To put that into perspective, that's roughly equivalent to
Chesapeake's current market capitalization.
The company describes the Utica shale as being "analogous"
to the Eagle Ford. Of course, one firm's claims, particularly
those of a company with a substantial interest in the area,
have to be taken with a grain of salt.
But if Chesapeake is the loudest player in the Utica shale,
it is not the only one. Supermajor Chevron (CVX.N) holds
acreage through its $3.8 billion takeover of Atlas Energy.
ExxonMobil (XOM.N) may also have gained exposure through
its recent takeovers of companies with land holdings in the
gas-rich Marcellus Shale in Pennsylvania as the Utica lies
beneath the Marcellus in places.
Other industry players are looking closely as well, as
evidenced by the conference on the Utica Shale organized by the
Society of Petroleum Engineers earlier this year.
One of the attractions to operators could well be cost
savings that may be found by sharing resources with gas
drillers in the Marcellus.
Oil output from the Utica shale is also well positioned to
be fed into refineries in the eastern portion of the Midwest.
Marathon Petroleum (MPC.N), in particular, has indicated
publicly it is interested in buying Utica crude.
Nearby river systems, such as the Ohio river, may also
offer logistical flexibility that could help move Utica crude
south to the Gulf down the Mississippi River by barge.
But substantial risks remain. Shale well productivity has
not been observed on a mass scale for a long period of time.
Output tends to drop off quickly from individual wells meaning
operators must keep up the pace of drilling to maintain
Shale oil development may also face more resistance from
communities in the more heavily populated northeast of the
United States, where opposition to shale drilling and the
associated hydraulic fracturing techniques needed to make wells
productive is strongest.
But given the rapid rise at the Eagle Ford shale, the
Utica, if indeed it is analogous, has the potential to upset
the apple cart once again.
(Editing by Alden Bentley)