Thursday, February 06,
2020 / 04:17PM / By Joao Piexe, OilPrice
/ Header Image Credit: Ecographics
"On a long enough
timeline, the survival rate for everyone [and everything] drops to zero."
For better or for worse, that grim and almost
cynical quote by the charismatic anarchist Tyler Durden of Fight Club is set to one day become an
existential crisis for the non-renewable energy sector.
The jury is still out regarding how close we are
to hitting Peak Oil or even whether abiotic oil is a real thing.
Granted, the sun and other renewable sources
will someday share the same fate as their more ephemeral cousins and succumb to
the second law of thermodynamics--only that we are talking about some seriously
dizzying timelines measured in the billions, not tens or hundreds of
years--hence the distinction.
For the US shale industry, the future hangs in
the balance. It's now official: after a phenomenal decade-long run that has
propelled the United States to the top of the oil producers' league, America's
second shale boom is running out of gas.
According to the US Energy Information
Administration, drilling in the Permian--easily the most prolific of the shale
basins--declined 11% in the nine months to August. Output growth over the next
year is expected to clock in at just 370,000 barrels a day--the slowest clip in
four years. With oil prices remaining stubbornly low and no respite in sight,
drillers in the shale patch are struggling and rig count has seen a steady decline.
The only thing supporting growth is a 'fracklog'
of drilled but uncompleted (DUC) wells that are now coming online as shale
producers like Apache Corp. focus more on well
completion and less drilling under squeezed budgets.
The situation could get a lot more dire for the
industry if Democratic presidential front-runners senators Bernie Sanders and
Elizabeth Warren have their way and ban fracking after ascending to the Oval
Office.
That's decidedly gloomy.
But what's the outlook for other parts of the
globe?
Texas-based Permian and Eagle Ford might boast
the most street cred of any shale plays, anywhere on the planet. However, there
are other regions that are pretty well endowed. Not only are they ready and
willing to seize the moment, but they're positioned to be the next major shale
boom venues.
#1 Argentina's Vaca Muerta
Vaca Muerta might mean 'dead cow' in Spanish;
however, Argentina's prized gem might soon become one of its leading cash cows
instead.
Located on an arid steppe nestled against the
Andes mountains along the western edge of Patagonia, Vaca Muerta is a continuous
tight oil and shale gas reservoir that's reputed to be one of the largest of
its kind. The 30,000 square kilometers (12,000 sq mi.) patch of land consisting
of lime mudstones, black shale and marl and is estimated to hold approximately
16.2 billion barrels of oil and 308 trillion cubic feet of natural gas as per
the EIA. The shale is found at a depth of about 9,500 feet (2,900 m).
In comparison, the Permian Shale contains 20
billion barrels of oil and 16 Tcf of associated natural gas.
Unfortunately, Vaca Muerta has little to show
for its vast riches with proper production yet to commence a century since oil
was first discovered there by American geologist Charles E. Weaver--thanks to
the region's checkered history.
Over the past eight years, Chevron and YPF SA,
the local oil giant, Royal Dutch Shell and Total have
sunk between them $13 billion into exploration into this unconventional play.
No company though had much to show for its efforts with obstacles popping up
everywhere and production marginal.
That's until this year when two companies
managed to export light oil and liquefied natural gas in what the country's
officials said foreshadows a steady flow of shipments by year-end.
Unfortunately, that too looks unlikely after the Argentina Energy Secretariat
once again extended the
deadline for
bidding for a project to build a 1,000 km pipeline to carry gas from the giant
formation.
With the Argentinian economy so weak, it could
be years or maybe even decades before Vaca Muerta can rival US Permian Shale
but make no mistake about it, the country appears dead-set at making this a reality.
And Chevron, Shell and Total are
likely to see their massive investments begin to pay off when it the region
begins to turn around.
#2 Kavango Basin, Namibia
And if Karoo is a shale windfall, Kavango is its
likely extension, according to geologists.
The Kavango Basin has the same Karoo geology,
and it's also been shown to have the same depositional environment as Shell's
Whitehill Permian shale play, part of the Karoo Supergroup in South Africa.
The 6.3-million-acre (25,000 square kilometers)
Kavango Basin is similar in size to the Eagle Ford basin.
And right now, a 90% interest in the exploration
license for the entire basin is owned by one small-cap explorer: Recon Energy
Africa (TSX.V: RECO, OTCMKTS:LGDOF), with a market cap of only $40
million and shares selling for under $0.80.
It's pretty unique for a company this small to
have a basin this big, but while few have heard of the company, everyone in the
business has heard of the geophysicist who examined the data on this basin.
They've also heard of Recon's CEO, Jay Park QC-the former director of Caracal
Energy, which was acquired by giant Glencore in 2014 for $1.3 billion.
Bill Cathey is the geophysicist to some majors.
When Recon brought the magnetic survey data from Namibia's Kavango Basin to
Cathey, Cathey said the data showed a 30,000-foot sedimentary basin. He also
said that a basin this deep, everywhere else in the world, produces commercial
hydrocarbons. Management of Recon dropped everything, so the story goes, got on
a plane, and finalized the deal for an exploration permit for the petroleum and
natural gas rights to the giant Kavango Basin.
So, now, tiny Recon (TSX.V: RECO, OTCMKTS:LGDOF) is sitting on a basin that's the
same size as the Eagle Ford.
Recon has a 4-year exploration license leading
to a 25-year production license starting when it has made a commercial
discovery.
Sproule--a tier 1 resource assessment
company--estimated that Kavango has a potential 12 billion barrels of oil or
119 trillion cubic feet of natural gas. That's for the shale and doesn't count
any conventional potential.
The first test wells are slated to be drilled in
Q2 2020.
That's just a few months away.
Namibia is one of the most oil-friendly
up-and-coming oil venues in the frontier of Africa. Ask Shell, or Exxon, both
of whom are acquiring assets there.
Shell (NYSE:RDS.A), for its part, is a veteran in the African oil and gas game. The
company began drilling in the region in the 1950s, and now has assets in over
20 countries across the continent. Though it has sold off a number of assets in
the region in recent years due to unfavorable regimes, it continues to maintain
a strong presence in South Africa and Namibia.
Exxon (NYSE:XOM),
on the other hand, is relatively new, but quickly upping its stake. The company
has already added over 7 million acres in four additional deepwater blocks just
this year. What Exxon's banking on is that Namibia, which according to theory
once fit together with Brazil, shares the same geology as Brazil's pre-salt basins,
Santos and Campos, which have already proved resource-rich, according to
Deloitte.
Whether it's Namibia, Argentina or South Africa,
what we do know is that the U.S. has already had its shale boom, and the next
multi-million-dollar oil play is probably going to come from somewhere else.
#3 Karoo, South Africa
The Karoo is a vast sedimentary basin covering
more than 600,000 square kilometers in central and southern South Africa.
Although the sheep- and ostrich-dotted expanse
is better known for its arid beauty and aching poverty, it could hold untold
riches underneath the surface in the form of natural gas. Former South African
governments placed restrictions that made Karoo out of reach for foreign
companies. However, President Zuma's government lifted the shale
fracking ban in 2012 thus opening up 485 Tcf of gas reserves for drilling.
If the EIA estimates are accurate, the Karoo
shale gas fields would qualify as the faifth largest in the world. The gas
extracted could power the entire country for a good 400 years and create
thousands of much-needed jobs.
The South African Journal of Science has,
however, disputed the EIA
reserve estimates saying that actual shale gas deposits are only 13 Tcf thus ranking
the country 34th out of 46 nations in EIA estimates.
Although local farmers and environmentalists are
opposed to any fracking activity in Karoo, three foreign companies-Falcon Oil, Royal Dutch Shell and Sunset
Energy-have already been granted licenses to explore for gas in the basin.
Bonus: Big Oil Diving Into Uncharted Waters
Though there are a number of exciting hotspots
popping up across the globe, it's also important to pay attention to oil
companies taking big risks on little-known exploratory projects.
Take Total (TOT), for example. It
recently announced a major oil discovery offshore Suriname with its
partner, Apache (APA). Apache's agreement with Total included
$100 million upfront payment and expenses incurred in exploration. The find was
a major boon for both Total and Apache, especially considering there had not
previously made any commercially viable oil discoveries. The find is doubly
beneficial for Suriname, which could be a significant turning point for the
small country's economy.
Though it's not entirely off the beaten path,
Egypt has also captured the attention of Big Oil in recent years. Just last
month, in fact, the country awarded Chevron (NYSE:CVX) and Shell
key exploration blocks in the red-hot Red Sea. The blocks cover a total area of
around 10,000 sq km and carry combined minimum investment of $326 million,
Egypt's petroleum ministry said, adding that potential investment would rise to
"several billion dollars" if discoveries were made.
Credits
The post The Most Exciting Oil Plays Of 2020 first appeared in OilPrice on Monday, February 03, 2020.
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