Energy Ink

Three U.S. shale plays that are keeping pipes full

March 19, 2012

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The Bakken shale play has become a household name among the energy industry’s cognoscenti.

Bakken production on the United States portion of the play crossed the 500,000 barrels per day (bpd) threshold in November, 2011. And Bakken crude, coupled with increased production from the oil sands and tight oil in Saskatchewan, is largely responsible for a supply glut at the Midwest crude oil hub of Cushing, Oklahoma that is seeing these crude blends trading at a significant discount compared to West Texas intermediate (WTI) – the North American crude pricing benchmark.

But the Bakken is just one of a number of unconventional plays that are leading to a renaissance of oil production in the U.S. and underpin the push by TransCanada Corp. and Enbridge Inc. to build pipelines like the Keystone XL and Northern Gateway that will ship Canadian crude to new markets.

Here is a brief rundown of three U.S. plays you’ll be hearing more about in the coming 12 months.

Eagle Ford

Drilling in this south Texas shale play has shot up dramatically since 2010. So much so that crude oil and condensate production hit 400,000 bpd at the end of 2011 and some forecasts see that total growing to over one million bpd by 2016.

The Eagle Ford formation is versatile – producers there, including Talisman Energy Inc., can exploit condensate, oil, natural gas liquids and natural gas. Break-even costs are high, though. Houston-based investment bank Tudor, Pickering, Holt & Co. estimate those costs are around US$48-80 per barrel. But with crude oil prices riding high, as of this January there were 220 new rig starts in the Eagle Ford.

The play also has an advantage for producers that the Bakken can’t match – it is close to Gulf Coast refineries, and there are number of pipeline projects currently on the books that would take growing Eagle Ford production and ship it to those refineries.

Niobrara

This emerging shale play encompasses northeastern Colorado, northwest Kansas, southwest Nebraska and southeast Wyoming.

Current production isn’t at the Bakken or Eagle Ford level – yet – as Dallas-based petroleum consultants Turner, Mason & Company say less than 100,000 bpd is currently being pumped out of the Niobrara. However, it forecasts production to reach 400,000 bpd by 2020.

Permian

The Permian in west Texas is one of the great U.S onshore conventional oil-producing basins of all time and is the source for the WTI crude stream. It was thought to be past its prime. That has turned out to be incorrect for the time being, as horizontal drilling has opened up the Permian to unconventional production.  

Turner Mason estimates conventional and unconventional production is between 700,000 to 800,000 bpd now and could rise to 1.2 million bpd by 2020. In a recent report on U.S. oil production, Platts Energy predicts the Niobrara and Permian shale oil plays could bring as much as 800,000 bpd to the U.S. crude market in the next five years.

However, as with all forecasts, the ones for the Eagle Ford, Niobrara and the Permian need to be taken with a few grains of salt.

Oil booms tend to be accompanied by a certain degree of puffery and production forecasts can rise dramatically as a result. Wells in these shale oil plays are producing robustly now, but how severe the declines will be is anyone’s guess. The unconventional age is still a new game.

Thus far, U.S. oil production is the petroleum industry’s comeback kid. Yet it’s wise to take a long-term view and to see if this trend has staying power. The U.S. is awash in oil now thanks to its shale plays. The outlook 10 years from now could (and likely will) look a lot different. And the difference could be either positive or negative for U.S. shale oil plays.

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