By John Kemp
LONDON, Dec 14 (Reuters) - Forget OPEC. By far the most important oil news today is that Saudi Aramco and China’s giant Sinopec and CNOOC energy firms are each in talks to buy up to a 30 percent stake in U.S. oil and gas services company Frac Tech International.
Frac Tech’s expertise in hydraulic fracturing makes it a major player in the fast-growing part of the oil and gas industry, which is set to radically alter the world’s energy supply picture in the next decade.
The company has hired Barclays to advise on the deal and plans to sell 20 to 30 percent of itself, either to one party or to a group, sources told Reuters.
Frac Tech, which is 30 percent owned by Chesapeake Energy , is also in advanced talks with Aramco, Sinopec and Spain’s Repsol-YPF to establish three separate fracking joint ventures in the Middle East, Argentina and China, Reuters reported from Hong Kong on Wednesday.
Frac Tech aims to close the deals by the end of February, the sources said, ahead of a planned initial public offering targeted to raise about $1.15 billion.
Frac Tech has hired Bank of America, Citigroup and Credit Suisse and Goldman Sachs to underwrite the IPO, which is slated for the second half of 2012.
The combination of horizontal drilling and hydraulic fracturing has already transformed North America’s natural gas market in less than half a decade. It is now starting to do the same for U.S. oil production, with the dramatic rise in output from North Dakota’s Bakken and Texas’ Eagle Ford formations resulting in the first increase in domestic output since the mid-1980s.
Aramco Chief Executive Khalid Al-Falih acknowledged that fracking was revolutionising the long-term outlook of the oil and gas markets, in a ground-breaking speech delivered in Riyadh last month.
The strong interest in Frac Tech’s technology and expertise from the world’s second-largest conventional crude producer (Saudi Arabia) and its second-largest oil consumer (China) as well from companies with an interest in the enormous shale resources of Latin America confirms the fracking revolution is swiftly spreading.
One study for the U.S. Energy
Adding unconventional gas roughly doubles the global gas resource base. Because unconventional resources are distributed more widely than their conventional counterparts, the development of shale gas could have major benefits for energy security, according to the International Energy Agency in its 2011 World Energy Outlook.
No comparable estimates have yet been produced for tight oil resources, but the global resource base is likely to be similarly large and widespread, based on the distribution and geology of sedimentary basins around the world and what has been learned about tight oil formations in North America. (For more on the argument see the “World Atlas of Oil and Gas Basins” by China’s Professor Li Guoyu.)
Fracking is intensely controversial in the United States, where it has been blamed for the contamination of drinking water and for triggering earthquakes and straining local water supplies because of the prodigious amounts of water used in the process.
France, which has some of the largest potential shale gas reserves in Europe in the Paris basin, has declared a moratorium on the procedure.
But in other parts of the world, interest is intense. Energy-hungry China is thought to have enormous reserves. PetroChina has drilled about 20 shale gas wells in Sichuan province, and initial results have been strongly positive, the company told the Financial Times newspaper earlier this month (“PetroChina finds shale gas reserves”, Dec 7).
Repsol-YPF announced earlier this year it had found the equivalent of 150 million barrels of tight oil in the Vaca Muerta formation of the south-western province of Neuquen, and the basin has been sufficiently analysed to have potential for near-term production, according to OPEC’s 2011 World Oil Outlook.
Even in Saudi Arabia, the world’s conventional oil giant, and in the other major Gulf oil exporters, there are likely to be substantial tight oil and gas resources located both above and below the conventional oil and gas-bearing formations, which explains Aramco’s interest.
Tight oil and gas will not be restricted to North America. Fracking and horizontal drilling have the potential to transform the industry worldwide.
Inside North America and Western Europe, the major constraint on the roll-out of the technology is political and environmental opposition. Outside the United States, the main constraints are lack of specialised equipment, know-how and skilled personnel.
It is access to specialist expertise is what makes Frac Tech, and similar firms, so attractive and a potent symbol of the accelerating transformation of the oil and gas industry.