U.S. oil production could reach five million barrels per day by 2017, according to Leonardo Maugeri, former executive of Italian company ENI (NYSE: E).
In a paper titled “The Shale Oil Boom: A U.S. Phenomenon,” Maugeri describes his research at the Belfer Center for Science and International Affairs, including the study of 4,000 shale oil wells in the United States and a profile of 100 companies involved in production. If oil prices remain at current levels, Maugeri believes U.S. development at full capacity could spread from 11.3 million bpd to 16 million bpd by 2017.
Maugeri is a fellow from the Belfer Center Environment and Natural Resources Program. The Roy Family Fellowship fostered this study. He left ENI in 2011 and has since gone on to write four books on the energy field.
In his current research, he went onto to say the U.S. production boom is something unique to the U.S. and harder to replicate worldwide. He cited the nation’s innovative spirit within the oil and gas industry, along with wider access to drilling rigs, as reasons behind the boom.
The U.S. has some of the highest success rates when producing and bringing wells online. Maugeri referred to 2012, where 45,648 oil and gas wells were produced and 28,354 were brought online. Internationally, other nations only produced 3,921 wells, according to his research.
Maugeri projected technology costs would continue to improve in North Dakota and Texas, two key areas of the U.S. production craze. As a result, 100,000 working wells could be online by 2030, a far leap from the current 10,000 current wells in both states.
In the Bakken, for instance, Maugeri’s assessment suggests the area would need to produce 90 wells per month to maintain record production levels of 770,000 barrels per day.
Maugeri’s research also revealed that the U.S. has 60% of the world’s drilling rigs, 95% of which have the necessary capabilities to achieve horizontal drilling and hydraulic fracturing, otherwise known as fracking.
Shale oil and gas drilling is cheaper than traditional crude drilling, but the reserves quickly dry up, spawning the need for constant new wells. According to Maugeri, it would be much harder to achieve ever-present drilling in places like Europe, where the terrain is more populated.
But as long as Brent oil prices remain above $100 a barrel, it is only a matter of time before other nations begin to follow suit in shale production, Reuters reports.
International Shale Bandwagon
Maugeri is more of a cynic when it comes to international shale production, but certain nations do show signs of promise.
Many nations do not have crude reserves on the level of the United States, but there are substantial shale gas beds around the world that can be harnessed and commercially exploitable.
There is no shortage of countries that want to mimic America’s energy achievements, whether it is shale gas or oil. OPEC nation Algeria is one of the top nations in the world with shale gas reserves, but the nation is being held back by sub-standard energy infrastructure and political instability.
The Polish government had hoped to replicate a shale gas production explosion in its home nation, but Exxon Mobil (NYSE: XOM) and Marathon Oil (NYSE: MRO) were forced to pull out after finding non-commercially viable hydrocarbon reserves. But don’t count out Poland just yet; it may be a setback, but Poland still has a bright shale future to look forward to.
Mongolia is looking to invest in shale production as well and has sent representatives to the West to study the industry. Like Poland, Mongolia hopes to get away from high-priced Russian energy imports, and the Asian county aims to power more factories to support its exporting economy.
Poland and Mongolia may not be able to unlock domestic shale production in the immediate future, but these two countries could potentially benefit from a more competitive export atmosphere if the U.S. becomes more involved in the export market.
In regards to U.S. natural gas, President Obama has expressed some leeway in allowing more exports, but other than Cheniere Energy’s (NYSE: LNG) Sabine Pass terminal and the Freeport LNG terminal in Texas, no other terminals have yet been granted approval from the Department of Energy to ship natural gas to international markets without free trade agreements.
Britain has already benefited from U.S. natural gas imports, with Cheniere planning to export liquefied natural gas to power millions of British homes. Britain is another nation hoping to join the shale gas production craze, but the nation currently relies on imports to meet energy needs.
Brazil also shows energy promise in the area of shale oil, but the lacking technology and lagging economy has forced Brazilians to import energy commodities.
And though U.S. crude is locked up fairly tightly, Canada is one of the few nations that has benefited from U.S. crude exports. Canadian refineries value U.S. light crude over the same type of commodity from Africa. And Canada would benefit even more if the Keystone XL pipeline were approved.
Watch out for China as well; the government there is looking to usher in some exploration campaigns of its own.
Chinese companies CNOOC (NYSE: CEO) and Sinopec (NYSE: SHI) are considering an investment in Frac Tec International, a company based in Texas. Such an investment could give the Chinese companies access to valued techniques in the fracking industry; the only question is whether or not the Chinese government will allow the necessary breathing room for companies to drill without excessive regulation.
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Currently, though, fracking in China is not foreseeable in the short-term, since the country is undergoing water shortages in many villages, and the government is in the middle of cracking down on its energy industry in effort to reduce carbon emissions.
But China does have a slew of engineers and energy experts at the ready, and the country could foster enough overseas exploration campaigns to build up a stable presence in the shale industry.
Still, the U.S. would remain one step ahead of China, since we may join Canada as a crude exporting nation sooner than anticipated. A crude exporting U.S. would not only catch on around the world, with its light WTI crude, but it would also be a safeguard against oil gluts and decreased production.
Prices need to be high for oil production to continue. Otherwise, oil could end up in the same boat as natural gas, where prices are too low to keep up production.
And with the U.S. not having enough pipeline capacity to meet exploding oil supplies, exporting may be the only rational option. But the accessibility of drilling technology is the necessary factor in keeping production going. Crude exporting would keep prices high enough to invest in new technologies, access more drilling rigs, and continue producing more wells.
Companies Behind the Boom
Maugeri’s research highlighted North Dakota and Texas, but which companies are the faces behind the success?
Continental Resources (NYSE: CLR) and Whiting Petroleum Corporation (NYSE: WLL) are two companies that have been primarily responsible for booming production levels in the Bakken.
Continental Resources is the largest landholder in the Bakken, with over 1,140,000 net acres as of December of 2012. Most of its acreage lies in North Dakota. Currently, Continental is pushing capacity due to lower well prices in the Bakken.
Whiting Petroleum is the second largest producer in the Bakken and Three Forks formation, with 714, 567 net acres in the Williston Basin. In the Bakken, Whiting reached a record of over 89,000 boe/d in the first quarter of 2013. It has operations in the Permian basin of Texas as well.
EOG Resources (NYSE: EOG) has some of the largest crude operations throughout Texas and the Gulf Coast. According to data from the Texas Railroad Commission, Conoco Phillips (NYSE: COP) and Chesapeake Energy (NYSE: CHK) are other top crude producers in Texas.
You may be surprised to see Chesapeake as a top oil producer, since the company is known for natural gas exploration, but Chesapeake has fallen on hard times since natural gas prices have fallen, and there have been internal management problems from former CEO Aubrey McClendon. But shareholders have placed more focus on crude to boost profits.
Chesapeake could continue to be one of the lead companies in fueling American energy ingenuity.
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