ExxonMobil hates one man above all else…
His name is Professor Crum Brown.
Now, for those of you who aren’t up to date with organic chemists from the 19th century, Professor Brown plays an interesting role in the history of the U.S. oil industry.
He coined the term kerogen back in 1906.
If that doesn’t ring a bell, you might know it by its more recognizable name, oil shale.
Think of it as the first stage in oil generation…
Take a bunch of kerogen, then bury it deep enough in the ground, and let it cook over a long period of time… Voilà! You have crude oil.
As it so happens, the United States has 2.6 trillion barrels of this stuff buried in the Western United States.
Fool Me Once, Shame On You…
The U.S. government has known about the Green River Formation for nearly a century. In fact, the United States Geological Survey reported on the deposit way back in 1922. (This is one of the reasons this oil shale deposit rests on government land.)
The fact is I have yet to come across an oil resource in the U.S. that has received more hype than the oil shale deposits in the Green River oil shales.
Rumor has it there’s a sign that hangs from an ancient wooden post right on the outskirts of the Green River Formation that ominously reads: “Abandon all hope, ye who drill.”
It’s all too easy to fall for the oil shale hype, and some of the biggest oil companies — including ExxonMobil and Shell — were duped into thinking the U.S. oil shale resources would eventually be profitable.
They were dead wrong.
Fool Me Twice, Shame on Me
Perhaps the most dreaded phrase in oil shale development is EROI.
Essentially, this is a measure of the energy necessary to produce a specific amount of energy. Oil produced in the 1930s, for example, had a ratio of 100:1. Today, the EROI of conventional oil is about 20:1.
The ratio for oil shale, on the other hand, is less than 2:1.
And yet, this still didn’t stop the likes of Exxon and Shell from taking a shot at developing the resource.
That is, until last week, when Shell announced it was ditching its oil shale efforts its Mahogany project in Colorado. Abandoning the project also meant that Shell had to flush tens of millions of dollars down the drain.
But don’t feel too sorry for them, because they got off easy compared to Exxon…
Exxon’s Black Sunday
Whatever you do, never mistake oil shale for shale oil.
Confusing the 2.6 trillion barrels of oil shale reserves in the Western United States with the billions of barrels of recoverable shale oil in formations like the Bakken and Eagle Ford is the single most expensive blunder you can make in the energy sector.
Just ask ExxonMobil…
Interchanging the words “shale” and “oil” is a lesson the energy giant learned the hard way.
Back in 1980, Exxon dished out $300 million for a stake in the Colony shale oil project in Colorado. A year later, the company broke ground on the project’s commercial scale shale oil plant. The plan was to ramp up oil shale production to 46,000 barrels of oil shale per day.
However, things didn’t exactly work out well for them…
The entire project was scrapped on May 2, 1982, and infamously dubbed “Black Sunday” from there on out.
In total, this disastrous project cost Exxon more than $1 billion — and resulted in the company handing out 2,200 pink slips.
Throughout this entire debacle, there was another event taking place nearly 1,000 miles away…
About the same time that Exxon was building its doomed oil shale plant, a man named George Mitchell was drilling his first horizontal wells into the Barnett Shale in Texas.
It was Mitchell’s pioneer work with horizontal drilling and hydraulic fracturing that led to the U.S. reversing its multi-decade production decline.
Now that ExxonMobil is the only big name left in oil shale, you can’t help but wonder how it’s fared against the big shale oil plays in the today’s market.
Pitting it against a North Dakota oil company trading with a market cap 125 times less than Exxon, one would think one of the world’s largest publicly traded oil companies would come out on top over the last five years…
As you can see, that’s clearly not the case.
I realize you don’t need me to tell you the kind of win-win situation these North Dakota drillers are in right now.
Until next time,
Keith Kohl
Check us out on YouTube!A true insider in the technology and energy markets, Keith’s research has helped everyday investors capitalize from the rapid adoption of new technology trends and energy transitions. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital, as well as the investment director of Angel Publishing’s Energy Investor and Technology and Opportunity.
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