August 20, 2010 / 6:36 PM / 9 years ago

Q+A: Companies producing oil from U.S. shale

NEW YORK (Reuters) - Three years after new technology ushered in an oil boom in shale plays like the Bakken in North Dakota, producers are looking for oil in formations where they previously had only found natural gas.

As these companies rush to grab land in Texas and Colorado, geologists doubt on the actual production potential from the newer shale plays.

What is the difference between shale oil and oil from shale formations?

Shale oil refers to hard rock that contains kerogen, a hydrocarbon made up of plant and animal remains that can morph into an oil reserve given enough heat and a few thousand years. To get oil, producers have to heat kerogen at high temperatures up to 932 degrees Fahrenheit (500 degrees Celsius) either after extracting it or on site, by heating the ore.

Shale oil production in the United States has thus far been minimal.

Oil from shale plays like the Bakken, on the other hand, is conventional light crude trapped in sedimentary rock sandwiched between shale layers. To get to the oil, producers drill horizontal wells in the more porous sedimentary layers, blast the surrounding rock to fracture it and then collect the oil that seeps into the wells.

Who is currently producing in the Bakken formation?

Most of the companies active in the Bakken now are middle-tier independent oil companies. EOG Resources (EOG.N) is the largest producer at 28,000 barrels per day, according to analysts watching the company. Continental Resources (CLR.N) claims to have the largest lease at 800,000 acres. Another notable operator is Hess Corporation (HES.N), which produces 16,000 bpd in Bakken.

Are big oil companies moving in?

Exxon Mobil Corp (XOM.N) obtained $1.8 billion in land lease contracts in the Bakken play with its recent purchase of XTO Energy.

Marathon Oil Corporation (MRO.N) has 350,000 acres and produces about 12,700 barrels of oil equivalent a day in Bakken.

Who’s buying in Bakken? And who’s investing the most?

In late July, Hess Corporation announced its acquisition of American Oil & Gas Inc AEZ.A for 8.6 million shares of Hess common stock. The deal would add approximately 85,000 acres to Hess’s land ownership in the Bakken. The company said in its second quarter conference call that it plans to ramp up its production in Bakken to 20,000 bpd by the end of this year, up from the current 16,000 boepd.

“Hess is the only company investing $5 billion at a billion a year for the coming five years. That is a third of their capital spending and double what any other company is investing in that play,” Fadel Gheit senior analyst at Oppenheimer said.

Who’s moving in to Niobrara?

Noble Energy (NBL.N) owns 750,000 acres and has drilled seven test wells in the play. EOG Resources has 400,000 acres and four test rigs in Niobrara. Mariner Energy Inc ME.N, SM Energy (SM.N), Anadarko Petroleum (APC.N) and Chesapeake Energy (CHK.N) have joined in, buying up land in the play.

Who’s moving to Barnett?

Chesapeake Energy, EOG Resources, Devon Energy (DVN.N) and Pioneer Natural Resources (PXD.N) have been producing shale gas in the Barnett play but now are turning to oil production. EOG and Pioneer estimate there is 690 million barrels of oil equivalent yet to be tapped in their Barnett holdings.

Who’s in Eagle Ford?

The Eagle Ford play is of special interest to companies intending to produce dry gas, liquid gas and oil condensates, with five major companies including ConocoPhillips (COP.N) and Anadarko Petroleum (APC.N) estimating their total holdings at 4.4 billion barrels of oil equivalent in the play.

EOG Resources, Anadarko Petroleum, Pioneer Natural Resources and ConocoPhillips have been most active in the play.

How will the uncertainties about environmental damage affect companies tapping oil from shale formations?

The vast expanses of oil in shale formations such as the Bakken were opened up because of advancements in hydraulic fracking technology. This employs procedures similar to technology used in shale gas production, already a cause of grave concern to environmentalists. Arguments are still flaring between oil companies and environmentalists about how much fracking contaminates surface and ground water.

Environmentalists are especially wary of a provision in the 2005 Energy Policy Act that exempts companies from reporting the type and amount of chemicals they use in fracking. Another point of contention is the amount of water fracking is known to require.

The Environmental Protection Agency will soon launch a $1.9 million study on the technology’s effect on groundwater and is at present holding hearings in areas affected by fracking for shale gas exploration.

Senate Majority Leader Harry Reid’s proposed Energy Bill has a section dedicated to hydraulic fracturing in which it proposes to force companies to disclose to the public the list of chemicals they use in their fracturing process.

Reporting by Selam Gebrekidan; Editing by Marguerita Choy

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