Baltimore, MD--Over the next few years, we're going to see a rush to develop unconventional oil and gas resources. And the temptation to go after 2.5 trillion cubic feet of natural gas in the Barnett Shale formation will become too great as other gas supplies continue to fall.
I'll admit, I almost never get into a row with one of my readers. The reason is simply because we're always on the same wavelength. So I was shocked to get an email from an excited reader. She was convinced that Barnett Shale is going nowhere.
We were clearly on different sides here.
You see, I firmly believe (along with many of you, I suspect) that the world's future energy supplies are going to come from what we consider today to be unconventional sources. For instance, those unaware of peak oil are in for a big shock once it becomes apparent the Middle East has nowhere near the amount of reserves they say they do.
Think of our oil and gas reservoirs as a triangle.
At the top are the easy-to-get conventional oil and gas wells. These smaller reservoirs are easier to develop, and because of them we enjoyed cheap oil for most of the 20th century and even a ways into the 21st.
As you go lower down the base of the triangle, the resource becomes more expensive to develop and produce. These sources are also much more abundant, like gas hydrates and oil shale.
For the sake of our worried friend, let's concentrate on natural gas.
Her first concern was over production. Unfortunately, she was a bit misinformed and under the impression that companies weren't capable of producing the gas economically. It's true there were some huge obstacles in extracting the gas from the Barnett Shale.
But two critical developments took place that changed everything: horizontal drilling and hydraulic fracturing.
Rather than using numerous vertical wells to tap into a resource, a few horizontal wells can now be used. Also, horizontal drilling is able to extract gas that was previously unreachable. Between 2005 and 2007, completed horizontal wells achieved a 100% success rate in Johnson, Hill and Bosque counties.
Now, technological breakthroughs like horizontal drilling are great, but would have been useless without hydraulic fracturing. You see, the Barnett Shale is considered a tight gas formation. The shale is hard and has a low permeability. Hydraulic fracturing involves injecting a large amount of water with enough pressure to fracture the rock. This increases the permeability and the flow of gas.
Once she realized that the technology is out there and constantly being improved upon, she quickly steered the conversation toward the interest in the area, maintaining that since it's too expensive to profit from, there aren't many companies willing to put the time and money into development.
Well, I had to politely disagree with that, too. Over the last several years, there has been tremendous growth for companies involved in the Barnett Shale.
Take a look at the last thirteen years:
You can see how this play has grown.
But this wasn't enough for her. I knew she was looking for something specific; some kind of proof that there's money to be made here.
Devon Energy, one of the operators in the Barnett Shale, has experienced considerable growth over the last few years.
Here's a glance at how they've performed. . .
Not too shabby.
Granted, they're also operating in several other countries and have a wealth of properties, but they certainly have established a presence in the Barnett Shale formation. Now, this company is huge, with a $37 billion market cap, which is why I prefer to go after the smaller companies that can deliver more bang for my buck.
Since this play is relatively young (ten years ago, how to economically extract the gas was still a geological enigma), there's an enormous amount of potential left in the Barnett Shale. It's only a matter of time before the conventional sources dwindle away. And trust me, when that happens you'll wish you had some unconventional gems in your portfolio.
Until next time,
Keith Kohl
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