The Next Big Shale Plays

Of all the rigs drilling for oil in the world, about half are operating in the United States – and half of those are in Texas.

In fact, for all the attention given to the Bakken shale play in North Dakota, the most activity is occurring in the Permian Basin in West Texas. There are 392 rigs drilling there, more by itself than any state outside Texas. Roughly half of all the drill rigs in Texas are operating in the Permian Basin; if you’ve been following the math, that means that about one of every eight drill rigs operating in the world can be found within a few hours’ drive of the Midland-Odessa airport.

The map below explains why.

The Focus for 2014

There’s a reason dozens of exploration and production (E&P) companies are drilling in the Permian Basin. It contains shale plays that most investors have never heard of.

And it’s where you’ll find most of the hottest plays of 2014:

  • The Bone Springs area is thick with old vertical wells, most of which are non-producing. It looked for a while like Bone Springs had been sucked dry, but horizontal drilling has changed all that. Today, 90% of Bone Springs’ production comes from new, horizontal wells but the beauty of a number of these plays is the existing pipeline infrastructure. Bone Springs will certainly be in focus in 2014.
  • The Cline Shaleis going to be one of the industry’s focal points in 2014 and beyond. Why? Various industry estimates of recoverable oil in the Cline range from 10 million to 150 million barrels of oil per section. Some E&P companies believe the Cline is one of the layers (also referred to as benches or intervals) of the Wolfcamp shale. It’s important to note that many of the Permian plays – such as the Cline, Spraberry and the Wolfcamp – are stacked plays. That means E&P companies can access all the oil-bearing layers from one drill pad.
  • The Spraberry/Wolfcamp is a great example of a stacked play containing as many as eight layers of possible oil-bearing shale. These too will be a focus of E&P companies in 2014.
  • The Marble Fallsformation is located just above the Barnett, in east Texas (not in the map above). While the Barnett Shale is the “grandfather” of all oil shale plays, Marble Falls may emerge in 2014 to take its place. The Marble Falls play is roughly 400 feet thick. Drillers wanting to develop this play can use existing Barnett shale drill pads and pipeline infrastructure. Last year, E&P companies drilled nearly 300 wells in Marble Falls. In 2014, we should see increased activity in this developing play. Most of the drilling will occur in the five counties that make up the Dallas-Fort Worth Metroplex.
  • The Granite Wash shale play is an established drilling location in the Oklahoma and Texas panhandles. However, operators there are beginning to do exploratory drilling in a number of other shale plays above the Granite Wash. These include the Brown Dolomite, Cleveland, Tonkawa and Marmaton shale plays. These are all at shallower depths, and therefore cheaper to drill than the Granite Wash.

U.S. West Texas Intermediate (WTI) crude oil prices are expected to remain above $90 per barrel in 2014. Natural gas prices have climbed above $4 per million British thermal units (MmBtu).

This is a double incentive for drillers to explore new shale plays for oil and gas. Those listed above are destined to be some of the hottest plays in 2014.

Good investing,

Dave Fessler


View original at: Investment U

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