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International Shale Exploration 'High and Rising'

The Cooper Basin in Australia, Argentina's Neuquen Basin and two formations in Turkey are the best prospects today for global unconventional production based on their geology, market access/pricing and regulatory schemes, according to an analysis by Tudor, Pickering, Holt & Co. (TPH).

To put the North American (NAM) unconventional boom into a global context, and to underscore the service elements needed to achieve full-scale development, TPH recently brought together global exploration and production (E&P) companies and oilfield service leaders for their take on resource development beyond Canada and the United States. The end product of the conference, "What the Frac is Going on Outside of NAM," was written by TPH's Shola Labinjo and Anish Kapadia. The analysts earlier this month discussed their findings in a conference call.

"The presence of 100-plus attendees, comprising industry folks, investors and government officials, has led us to the inescapable conclusion that interest in international shale resource exploration is high and rising," said the duo. "Across the world, industry, led predominantly by small-cap E&Ps, is looking to leverage learnings from the U.S. shale boom, with a view to unlocking the next international play.

"Good progress is being made, with commercial shale oil and gas production already under way in Australia and Argentina. Elsewhere, the integrateds and large international oil companies are also acquiring shale exploration licenses globally," including Royal Dutch Shell plc in South Africa (Karoo Basin) and China (Sichuan Basin); ExxonMobil Corp. in Argentina (Neuquen); and Chevron Corp. in Australia (Cooper) and South Africa (Karoo) (see Shale Daily, July 19; Aug. 31, 2011).

"Noticeably absent are the U.S. independents, which are understandably preoccupied with opportunities at home."

Analysts ranked the most promising unconventional basins "with a view to identifying the most likely candidate for successful commercial development" using TPH's proprietary Global Emerging Shale Play Heat map. The map is comprised of seven factors -- geology, economic incentives, service availability, market access/pricing, infrastructure, access to capital and regulatory/environmental acceptance -- that must converge in order for a play to be commercial.

The methodology "is wildly subjective," said Labinjo. "The rock is most important. After that, as free market capitalists, we tend to weigh private sector resource allocation very heavily.

"This view plays into our thinking around the majority of the above ingredients, most notably economic incentives. However, it isn't absolute. We'll stipulate that good rock plus money equals production growth, and we're aware of the power of strategic imperatives."

Earlier this year the Australian Council of Learned Academies reported that unconventional development in the country would be costly because infrastructure funding would be double those in the United States (see Shale Daily, June 6). The council said operators would spend more than $500 million on shale exploration over the next one to two years. Australian-based Santos in 2012 drilled a well into the Cooper that flowed at a rate of 2.7 MMcf/d (see Shale Daily, Oct. 23, 2012).

In addition to the Cooper and Neuquen basins, other top picks were Turkey's Anatolian and Trace basins. Analysts are "reasonably positive" about Russia's Bazhenov Shale in the West Siberian Basin, but they have "mixed feelings" about the well-touted Bowland Basin in England and China's Sichuan formation.

Poland, one of the first of the emerging shale plays beyond NAM, "has crashed back to earth and is now our least preferred," said analysts.

"Geologically, the elements are in place in most regions, however, specific issues, including skepticism around hydraulic fracturing, regulatory inertia and unstable fiscal regimes are impeding progress. Host governments have been divided in their response...

"Strategic imperatives aside, it is very clear that commercial development will be different globally than in the U.S., as state ownership of minerals complicates the individual economic incentive. Hence, social acceptance by landowners and host communities will be critical to the success of the international shale plays, particularly in densely populated jurisdictions such as Europe."

Unconventional development costs beyond NAM today is much higher, but analysts said they were less concerned about oilfield services because they have in the past been adept in identifying revenue opportunities and "will ultimately selectively invest in providing capacity in the commercially viable and scalable plays." Issues associated with water use and handling also are expected to be solved as technology evolves.

"However, we do believe that outside of basins with in-situ legacy infrastructure, liquids-rich plays are likely to be preferentially developed versus gas plays, given the lower infrastructure requirements," said the TPH analysts.

International resource development will be "just as capital intensive" as domestic development has been, which means that capital markets will be needed for full-scale commercialization. "Bottom line, it is going to take a while for all the enablers to fall in place; international shale players will require the patience of saints!"

Earlier this year Raymond James & Associates Inc. analysts also found a lot of global shale prospects but said it would take at least two years before drilling progresses to commercial success (see Shale Daily, May 7).

TPH's analysis didn't include Denmark, but earlier this month the U.S. Geological Survey (USGS) estimated that the Alum shale area holds about 6.9 Tcf of technically recoverable gas. The USGS study of Denmark is its first-ever assessment of the shale gas potential there.

The Alum Shale consists of an offshore and onshore section, with the onshore accounting for most of the estimated reserves, USGS said. Officials said they don't believe the area contains significant quantities of oil. However, exploitation may be difficult because of the "complicated geology."

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