Source: SeekingAlpha.com
Over the last decade, more and more North American onshore oil and gas (O&G) production has come from past-producing deposits and shale. In this exclusive interview with The Energy Report, Wellington West Capital Oil & Gas Analyst Kevin Shaw talks about the technology behind this shift and how it’s affecting sector plays domestically. He also discusses what’s happening on the international circuit as North American E&P companies take their newfound know-how and multistage horizontal fracking expertise to new oil and gas hotspots in places like Argentina, Europe and New Zealand.
The Energy Report: Technology is changing the exploration landscape. It has enabled companies to reach untapped oil and gas in what were previously considered non-economical parts of many conventional producing reservoirs and to enter into many unconventional shale plays. How is this changing the game for North American exploration and production (E&P) companies?
Kevin Shaw: What’s old is new in terms of those existing pools, especially in the Western Canadian Basin. It’s all about going into poor-quality rock, which over the last 30 years typically would have been uneconomic to drill vertically. Horizontal drilling can open up more reservoir rock, connect the wellbore to more reservoirs, go into tighter sands with multistage fracture completions and increase recovery factors to increase reserves and production within the Western Canadian Basin. With multistage fracs, what was old once is now new, and it’s really revitalized the industry.
The use of horizontals started largely in the southeast Saskatchewan Bakken play, which translated down to North Dakota, and also moved into the U.S. shale plays (Marcellus, Eagle Ford, etc.) and the Canadian Montney formations on the gas side. Now horizontal multistage fracs are being utilized in a big way in both the Cardium and the Viking oil resource plays. The Beaverhill Lake is another zone coming into play, and there are several other zones of interest. In the Cardium, for example, they’re now extending lateral lengths of horizontals, putting in more fracs and getting better production and well results month-to-month out of the gate, as well as getting more reserves booked to each well they drill. This has changed rapidly over the last 12 months.
So it’s game on in a big way for technology; it’s “game on” for many of the older pools that had been considered depleted. And it’s an evolving space, with a lot of technology that keeps changing all the time. Companies are even starting to use horizontal frac technology with conventional pools to increase recovery factors and production reserves. The game has changed in a big way over the last few years. It’s great for service companies as well as E&Ps. Well by well, pool by pool, production rates are being enhanced in most new plays.
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TER: Will the time come when the unconventional plays provide the majority of onshore oil production?
KS: In specific areas around the world, you can see a significant amount of capital spending over the next 10 years go into unconventional plays, but will it drive global production and supply? An awful lot of conventional reserves still supply the market, so I wouldn’t go so far as to say unconventional plays will be the key driver. Still, it’s going to be a key part of the evolution of gas and oil in a lot of places, not just in North America but internationally as well.
Right now, there’s an effort to prove up European shale gas in multiple areas. You’re seeing what’s happening in Poland with ConocoPhillips (COP), BNK Petroleum Inc. (BKX) and others. That could potentially change the game for the European gas market over the next 10 years. It’s not going to happen right away, because it will take time to build the infrastructure to put discoveries into production, but in the 5– to 10-year window, it could change the European gas market in terms of the amount of supply that can be made available from unconventional plays.
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TER: You’ve talked about Argentina, and a little bit about Poland. Anywhere else?
KS: Sure. It’s even in places such as the Paris Basin Shale oil, where the French government is currently looking at the regulations associated with industry fracing practices and in onshore Romania where there is shale gas potential much like is seen in Poland today. The Paris Basin Shale has huge potential. It’s a North Dakota Bakken look-alike area, and companies such as Sterling Resources Ltd. (SGURF.PK) have a huge position with potential of ~1 billion bbls of oil in place net to SLG. Sterling also has 400,000 net acres of onshore shale gas potential in onshore Romania next to Chevron (CVX), who recently entered the space for the unconventional shale upside. If this Paris Basin shale oil and/or the Romanian shale gas potential proves up, it’s nowhere in Sterling’s stock price today and both plays are considered “game-changers.”
TER: Could you tell us more about the Paris Basin?
KS: The Paris Basin is an onshore shale oil deposit, very similar to the North Dakota Bakken. A lot of vertical wells have been drilled through conventional producing basins. There’s a lot of activity with Hess Corp. (HES), Toreador Resources Corporation (TRGL) and several other major companies who have acquired land positions in the play and preparations for several key wells could go down later this year.
