Chattanooga Shale Stocks

Brian Hicks

Written By Brian Hicks

Posted October 25, 2013

The Chattanooga Shale stretches into parts of Alabama, Kentucky, and Georgia, but more notably, we’re taking a look at Tennessee.

The state is not known for its oil and gas production – no way, no how. In fact, it’s in the lowest third in the country for natural gas and in the bottom five for oil.

shaleBut if we go to east Tennessee and follow the Chattanooga Shale, we find that it is an extension of the Appalachian Basin Devonian Shale, or the Marcellus Shale, as it’s commonly known. And we all know how much of a contribution that has made to the U.S. energy boom.

That’s why we have to start looking at Tennessee – because it’s going to be getting a piece of the action now, too. Fracking and horizontal drilling have given life to shale formations that until recently were untouchable.  Even states like Tennessee are becoming part of a renewed energy industry sweeping through the country.

What you find in east Tennessee and its Chattanooga Shale is an abundance of natural gas. But what sets Tennessee apart from other gas producing states is that it uses very little water for wells.  This has everything to do with the formation of the Chattanooga and how the natural gas sits in its shale rock.

And that’s a big advantage Tennessee has over other states.  Others may be putting up big production numbers, but they also have to battle it out with environmental groups and regulators over the use of water.

Since June, the state of Tennessee has new state fracking regulations in place as exploration begins to pick up.

The Chattanooga Shale

You see, the Chattanooga Shale runs 2,000 to 5,000 feet underground, and it is much more shallow than, say, the Marcellus Shale, where shale depths run as deep as 9,000 feet, according to Circle of Blue.

That makes the Chattanooga a low-water shale play.  The shale rocks are under less physical pressure, so fracking is different too.

Atlas Energy (NYSE: ATLS) attempted Tennessee’s biggest fracking operation when it pumped about 4,000 gallons of water into a well, but the shale didn’t respond to the water.  The water has a reverse effect on low-water shale plays because of the amount of pressure.  Instead, more success has been found with a nitrogen frack, the preferred method, where gas is simply released into the atmosphere as about 80 percent nitrogen.

That’s the upside to the Chattanooga Shale and why drilling will begin picking up.  But while it doesn’t require water, it still has its share of problems.

One, drillers have to worry about methane leaks if too much gas escapes the wells.  This can lead to low quality air and a carbon dioxide problem that natural gas is supposed to prevent.

And second, in Tennessee, there are only two inspectors in the mineral division that check on the wells in the state.  The state is severely understaffed in this area, making it hard to regulate, and this is one area that must be addressed as companies ramp up efforts.


Drilling has been sluggish in recent years as well.  Atlas Energy has about 40 horizontal wells in Tennessee, but not a single new one in three years.

But as things start to change – there’s no need for water, nitrogen fracking is working, and updated regulations are in place – companies are starting to see more potential in east Tennessee’s Chattanooga, and they’re snatching up mineral rights.

Atlas Energy has the strongest force in the region and has accumulated 105,000 net acres in eastern Tennessee and its Chattanooga Shale.

Others who are also exploring the Chattanooga include Chesapeake Energy (NYSE: CHK), GeoMet (OTC: GMET), and Energen Corp. (NYSE: EGN).

All of these companies will be looking to expand operations in the short-term.  Right now, every single one of their stocks is down.  That will change.

I still say it’s going to be a while before we start seeing the signs and things really start picking up in Tennessee, but things are turning in that direction. Tennessee and its Chattanooga Shale will turn some heads.  It just has to pick up the pace first.


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