The document provides an overview of shale activity in several regions around the world. It summarizes shale prospects and challenges in Europe, Australia, Latin America, Africa, China, and key shale basins in Russia, Australia, Argentina, Colombia, Mexico, and Tunisia. Operators active in each region are outlined with well counts, acreage positions, estimated recoverable resources, and initial production rates where available. Challenges include geological complexity, lack of infrastructure and water, and security issues impeding development.
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NATIONAL OILWELL VARCO
MARKET RESEARCH & ANALYSIS
International Shale Analysis
August 7, 2014
Region Summaries
I. Europe
Although Europe has potentially very productive shale basins, many European countries have
either banned, or placed strict moratoriums on hydraulic fracing within their borders. Poland, one of the
countries that do not have a ban on fracing, has some of the most favorable infrastructure and public
support for shale development in the region. However, although initial exploration confirmed the
resource potential of Polish shale, it also revealed that conditions within the reservoir may be more
challenging that operators may have once thought. Currently, many operators are withdrawing their
operations from Poland, expressing disappointment with reservoir quality and drilling results. Eastern
European nations seem to be warming up to the idea of fracing, although Ukraine is currently the only
country that is allowing shale exploration to continue. Exploration was at one time underway in
Romania, but has since been put on hold.
The United Kingdom recently allowed shale exploration and development until a well fracture
was believed to have caused a series of very small earthquakes. After the incident an 18 month
moratorium was instated in order to conduct environmental research concerning fracing. Following the
moratorium, strict monitoring controls were placed on fracing in the country, resulting in less economic
well statistics than operators would have liked to see. In Spain, the government is somewhat
enthusiastic about fracing, although towns throughout the country have a different opinion. Over 400
towns throughout Spain have declared their lands “frac-free zones” and will not authorize the sale of
exploration permits to operators. France has completely banned fracing in the country, which contains
shale similar to that which is found in the Williston Basin in North Dakota.
In northern Europe, Germany has just lifted a moratorium on fracing, leading to operators such
as ExxonMobil entering exploration operations in the area. In the Netherlands and southern
Scandinavian regions, complex tectonic features have kept operators at bay. Shell Oil drilled three
exploration wells in the Alum Shale, but ceased operations after the wells turned out uneconomic.
Russia has always been open to fracing and is currently working with western IOCs to develop its
shale resources. Surgutneftegaz is Russia’s only NOC refusing to work with western operators on its
shale prospects, the company has stated that it wants to develop shale techniques on its own, but with
37% of its conventional wells turning out dry, it is unlikely that Surgutneftegaz will become a shale
player in the region any time soon. The geology in the country is also much better than that of the rest
of Europe; the Bazhenov Shale is described as having somewhat similar geological structures to the
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Bakken Shale in North America. The above-average geology in the region mixed with the country’s
willingness to frac has made Russian shale plays the prime prospects for shale development in Europe.
II. Australia
In Australia, geologic conditions closely resemble those of the United States and Canada. Many
believe that Australia has the potential to become one of the next countries with commercially viable
shale oil & gas production. Although Australian basins have excellent production potential, development
is likely to proceed slowly due to the remote location of many of these basins. The Cooper Basin already
has oil & gas infrastructure and processing facilities in place from conventional production, so it makes
sense that the basin is currently the busiest in the continent. Although higher clay contents in the basin
create uncertainty as to how the shale will respond to hydraulic stimulation, many operators are
scrambling to claim stake in the Cooper Basin, as there is relatively little faulting, which is ideal for
horizontal shale drilling.
III. Latin America
South America is primed to be the location of the world’s next big oil & gas boom. Nearly all
shale basins in the continent have above average ratings of shale richness and Argentina has the most
prospective shale outside of North America. Colombia is making attempts to bring operators into the
country’s shale plays by introducing excellent incentives, such as higher oil prices and a 40% reduction in
royalties.
Mexico has excellent potential for developing shale oil & gas resources. The Eagle-Ford shale,
which extends from south Texas over the border into Mexico, is the best documented and most
prospective shale in the region. However, as one progresses farther south in the region, the shale plays
begin to become more geologically complex, reducing interest in these regions. PEMEX is currently the
only operator that Mexico allows to operate within its borders, however the Mexican government
recently announced that this is about to change. Starting in either 2015 or 2016, the oil & gas resources
of Mexico will be open for business to international oil companies. Initial shale production wells in the
region have been Pricey for PEMEX at about $25 million apiece, and flow rates have been modest at
best reaching approximately 3 MMcf/d peak rates with very steep declines. PEMEX’ development of
Mexico’s shale resources has been constrained by several factors such as limits on upstream investment,
nascent capabilities of the local service sector, and public security problems in many shale areas.
IV. Africa
In North Africa much of the shale is referred to as “hot shale,” or shale with high uranium
content. This shale is immature in the northern part of the region, but grows more mature as it
progresses south. Libya is an important hydrocarbon producing country in the region with most of its
lands being dominated by shale plays; however gas exploration, including the assessment of resources,
came to a halt during the uprising of 2012. Although recently the chairman of Libya’s national oil
company stated that he is interested in bringing in international oil companies with shale production
technologies after an internal assessment of Libya’s unconventional resources has been completed.
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Most of the drilling and nearly all of the production in the region comes from within the borders of
Tunisia in the Ghadames Basin.
The Karoo Basin dominates most of South Africa; however there are several problems the area
presents to prospective operators. Igneous intrusions plague the shale basin creating significant
exploration risks in pursuing resources there. The Karoo also has a complex geologic structure, creating
even more risk for prospective operators.
V. China
There are currently many problems in China that operators must take into account when
prospecting the region for shale oil & gas. The first problem is getting the equipment to the drill site in
the first place; many of the shale basins in China are located in remote parts of the country without
infrastructure for transporting heavy machinery or hydrocarbons. These areas also lack a supply of
water for making the hydraulic fracing fluid at the drill site; instead it must be trucked in from other
parts of the country. Luckily the Sichuan Basin, China’s best prospective shale play, is located close to a
supply of water, however there are still many difficulties operators must face in the region. Once drilling
begins, operators encounter extremely faulted geologic structures underground; an issue that has
caused well completion times of eleven months for PetroChina, compared to the two week completion
times operators enjoy in North American Basins. The shale oil resources also tend to be waxy and are
stored in mostly lacustrine-deposited shales. These waxy shales are clay rich and therefore much less
favorable for hydraulic stimulation. Once the wells have been completed, fractures also grow planar due
to the high level of stress encountered in the shale. Assuming these significant geological and
operational issues can be solved, the Sichuan Basin may become China’s premiere shale gas basin, as the
shale here is quartz rich and is roughly comparable to North American analogs.
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Basin Activity
I. West Siberian Basin (Russia)
The West Siberian Basin is located between the Ural Mountains and the Yenisey River. The
West Siberian Basin is the largest petroleum basin in the world with an area of 850,000 mi2
.
Currently, there is not enough publically released information to determine the amount of
technically recoverable resources of oil and gas. The northern area of the basin is not considered
prospective since the shale in that region is at depths greater than the 5,000 meter cut off.
a. Rosneft
18 Bbls EUR
JV with ExxonMobil
o Still in exploration phase
b. Surgutneftegaz
Unwilling to partner with western corporations in order to develop shale extraction
technologies themselves.
>600 conventional wells drilled
o 37% dry
o 63% producing
IP rates up to 2,200 bls/d
800 Bls/d (30-year avg)
30 MMbls EUR (P1)
c. GazpromNeft
Plans to commence production of tight resources in 2015
d. Lukoil
1,000 mi2
$120-150 million investment to develop the Bazhenov formation in W. Siberia
e. TNK-BP (Rosneft)
4.5 Bbls EUR
Currently working on 7 projects in W. Siberia examining tight resources
$100 million spent across all projects in 2013
Planning 6 more projects
o 3 with Schlumberger
o 2 with Halliburton
o Currently seeking another service company partner with experience in shale drilling
and fracing
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II. Cooper Basin (Australia)
The Cooper Basin is located at the South Australia/Queensland border and covers an area of
130,000 km2
. There is an estimated net recoverable resource count of 93 Tcf of gas and 1.6 Bbls
of oil located at a depth of approximately 5,000 to 10,000 ft. The Cooper Basin is situated in a
prime location to service the large population centers of eastern and southern Australia.
a. Beach Energy
23 Mboe/d
0.4 MMcf/d IP
91 MMboe EUR
Joint venture with Cooper Energy
o Began 3-well exploration program on June 6, 2014
b. Senex
Evaluating shale gas prospects
o Of 25 exploration wells drilled, 23 have been cased & suspended
c. Drillsearch Energy/BG Group (joint venture)
Exploration phase
12.2 MMboe EUR (1P)
20 exploration wells planned for YE ‘14
Approx. 5.7 million net acres
1.8-2 MMcf/d IP
d. Santos Ltd
3 exploration wells
2.5 MMcf/d (30-day avg)
Exploration phase
1.5 Bcf EUR per well (YE 2012)
63.4% market share in Cooper Basin
III. Neuquen Basin (Argentina)
The Neuquen Basin is located in west-central Argentina and covers an area of approximately
66,900 mi2
. The shale in the basin is located between 8,000 and 14,500 ft however, some shale
in the basin is located at depths greater than 16,000 feet and therefore is out of reach using
current technology. The estimated technically recoverable resources of the basin are 583 Tcf of
gas and 19.7 Bbls of oil. The Neuquen Basin is predicted by many sources to be the location of
the next big shale oil/gas boom.
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a. YPF SA/Chevron (JV)
20 Mboe/d
750 MMboe EUR total
96,000 acres
161 producing wells
200 bls/d IP
b. EOG Resources
95,000 net acres
1 net well, 3 gross
o Currently evaluating the results of these wells
o Intends to proceed cautiously in the region
c. Americas Petrogas
960,000 net acres
6.7 Bboe EUR total (P50)
972 Mcf/d recent completion IP (27-day test)
10-15 gross wells
Still in testing/exploration phase
IV. Middle Magdalena Valley Basin (Colombia)
The Middle Magdalena Valley Basin is a north-south trending basin is central Colombia that
covers an area of approximately 13,000 mi2
. The shale in the basin is located between the
depths of 3,000 to 15,000 ft and contains an estimated 18 Tcf of gas and 4.6 Bbls of oil of
technically recoverable resources.
a. Ecopetrol
2.7 million acres
o 4 exploration blocks
o 34 production blocks
11 wells, 5 fracs planned thru YE ‘14
$240 mil CapEx for Colombia operations
31.7 Tcf EUR total
Still in testing/exploration phase
b. Canacol (ConocoPhillips/Shell/ExxonMobil JVs)
62,000 sweet spot acres; 250,000 total net acreage
11 shale exploration wells planned thru YE ‘15
Test rates approx. 7.5 Mbls/d
$117 mil CapEx for Colombia operations
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c. Nexen (CNOOC)
1.5 million net acres
Still in exploration phase
o Long term investments depend on the results of their 4 exploration wells
d. Sintana Energy
53,750 net acres
o VMM-4 and VMM-15 blocks
100% interest in 43,000 acres
o VMM-37 block
210 MMbls EUR total
Joint Venture with ExxonMobil:
o VMM-37 block (43,000 gross acres)
o Exxon gets operatorship and 70% interest
o Sintana gets 30% interest, or 100% interest and operatorship if Exxon opts out after
unfavorable results
V. Tampico/Burgos Basins (Mexico)
The Burgos Basin is located in the northeastern part of Mexico’s Coahuila state and covers
an onshore area of approximately 24,200 mi2
. The estimated recoverable resources of the basin
are 343 Tcf of gas and 6.3 Bbls of oil which are located at an average depth of 11,500 ft.
a. PEMEX
10 wells planned for 2014
o Would bring total shale well count to 175
Mexican government considering opening up to foreign investment in the region
o 2016-2017
o Pemex loses monopolistic powers, but gets first pick of production zones
Very slow progress in the region
o Pemex does not have resources it needs to fully utilize the vast oilfield
o Drug cartels roam freely in the region, operations are halted at night due to safety
concerns
Production rates, EURs, and IP rates unavailable
PEMEX is currently the sole operator on all of Mexico’s oilfields (100% acreage
ownership)
>300 Tcf technically recoverable resources in the Burgos field
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VI. Ghadames Basin (Tunisia)
The Tunisia portion of the Ghadames Basin is located in the southern part of the country
and spans an area of 2,470 mi2
. The estimated recoverable resource count in the Tunisian sector
of the basin is approximately 23 Tcf of gas and 1.5 Bbls of oil, which is located at depths
between 8,000 ft and 14,500 ft.
a. CYGAM Energy
1.5 million net acres
o 453,000 net acres after sale of Sud Tozer permit
Exploration permits obtained through the open-application process do not require
payment of signature bonuses or competitive bidding processes
CYGAM’s permits are all production sharing agreements
o Bazma Permit (extended through July, 2016)
319,000 acres
100% working interest
Focus on seeking a joint-venture partner
2 exploration wells, one deep, one shallow
o Sud Tozeur permit (Held through May, 2014)
> 1 million acres
100% working interest
Sale of all assets and permit to YNG Exploration Ltd. agreed on in April 2014
o Sud Remada permit (Extended through Dec, 2014)
868,000 acres
14% working interest (Storm Ventures International is operator)
207 bls/d CYGAM share, 2.3 Mbls/d total production
A 6-well vertical drilling program is expected to be completed in Q2 2014
b. Chinook Energy Inc
1,387,661 net acres across Tunisia; 227,139 net acres in shale territory
Several deep exploration wells underway (2013)
No shale production yet
Agreed on the sale of all Tunisia assets to MedcoEnergi (June 16, 2014)
c. Perenco Tunisia
38,000 net acres
10,000 boe/d (conventional)
Drilled and fraced a well in 2010
o As of 2012, Perenco is not producing any shale gas
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d. Serinus Energy
147,872 net acres
1,345 boe/d
13 producing wells
11.5 MMBOE EUR (net 2P)
Parent company (Kulczyk Investments) is heavily involved in shale gas exploration
o Serinus Energy is expected to attempt drilling for shale gas in Tunisia (Q2 ’14)
VII. Karoo Basin (South Africa)
The Karoo Basin spans a large area of approximately 236,400 mi2
in central to east South
Africa. The estimated technically recoverable resources of the basin are 370 Tcf of gas, which is
located at depths between 6,000 and 10,000 ft. The shale in the basin has many igneous rock
intrusions and is frequently disrupted by faults, creating risk for operators prospecting in the
region.
Operators:
o Falcon Oil & Gas/Chevron Corp (JV)
7.5 million net acre technical cooperation permit (TCP)
o Shell Oil
45.7 million net acre TCP
o Challenger Energy
Awaiting 800,000 acre exploration license
o Sasol/Chesapeake/Statoil (JV)
Awaiting 21.8 million net acre TCP
Operators have claimed their stakes in the region, but the South African government
cannot seem to make its mind up about whether or not to allow hydraulic fracing.
o Fracing moratorium lifted in September, 2012
o Exploratory drilling is permitted, but the government will not allow fracing until
environmental studies are completed
VIII. Sichuan Basin (China)
The Sichuan Basin covers a large 74,500 mi2
area in south-central China. The estimated
technically recoverable resources in the region are 625.9 Tcf of gas, which is located at depths
between 3,280 ft and 16,400 ft. Considerable work is needed to define the geological sweet
spots, develop the service sector’s capacity to effectively and economically drill and stimulate
modern horizontal shale wells, and install infrastructure. Extensive folding and faulting in the
basin has created considerable structural complexity. PetroChina’s first well took 11 months to
drill compared to 2 week completion times in North America. Most Chinese shale formations are
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located in remote parts of the country that lack water for fracing and infrastructure for
transporting extracted hydrocarbons and heavy equipment such as drilling rigs. Water recycling
technologies would provide a workable solution to the water problem in the area and give the
supplying company a virtual monopoly in the region.
General estimates for the region are 3.3 MMcf/d IP rates, 3.54 Bcf EURs per well, 2.45
CapEx/Mcfe, $4.58/Mcf breakeven, $4.68 MM well cost, and a 16% RoR for production wells.
a. PetroChina/CNPC
2 wells struck high gas flows
Controls all the oilfield infrastructure in the region in a monopolistic manner
o Access to pipelines require IOC operators to enter into joint venture agreements
with the NOCs
o Limits economic effectiveness in the region
Joint Exploration with Shell
o Fushun-Yongchuan Block
b. Sinopec
0.6 MMcf/d
Joint venture with FTS international
o Operations expected to commence in 2015
Joint venture with BP
o Approx. 500,000 acres in Kaili
o Approx. 250,000 acres in Huangqiao
c. Shell Oil
Awarded 3,500km2
(approx. 850,000 acres) in the Fushun-Yongchuan block
Pursuing joint studies in the Zitong and Jinqui blocks
Spud first Fushun block well in 2011
Global Strategin Alliance Agreement signed with CNOOC (June 17, 2014)
o Plans to spend $1 bn annually to develop shale gas reserves in China
5 exploration wells drilled in 2011
o Cores confirmed good resource potential
o High breakdown pressures and fluid leakoff resulted in poor stimulation
o Wells flowed at 2 MMcf/d
o Fault related problems caused completion times of 100 days
Horizontal part of the well kept wandering out of the target formation because
of complex faulting/folding in the geologic structure
Completion times later cut down to 50 days
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d. ConocoPhillips
3 MMcf/d (Q1 ’14)
o Accounts for more than a quarter of ConocoPhillips total production in Q1 ‘14
Approx. 713 MMcf/d predicted
Joint study agreement with Sinopec signed December 2012
o Conduct assessment of the 1 million acre Qijiang block
o 2 year agreement term
o 2D seismic and vertical exploration wells planned throughout agreement period
Joint study agreement with PetroChina signed June 2014
o Will study potential of the 500,000 acre Neijiang-Dazu block
o 19 month agreement term
o Desktop study and drilling preparation work
e. BP Ltd
Joint exploration and development agreement with Sinopec
o One block in Kaili containing approx. 500,000 net acres
o One block in Huangqiao containing approx. 250,000 net acres
f. ENI
Has interest in leasing exploration/production blocks in the Sichuan Basin
Signed a memorandum of understanding with CNPC on shale gas in early 2011
g. ExxonMobil
Has interest in leasing blocks in the Sichuan Basin
Currently evaluating the ~900,000 acre Wuzhistan area in the basin
h. Statoil
Has interest in leasing blocks in the Sichuan Basin
Negotiating with PetroChina for a shale gas block (as of 2013)
i. EOG Resources
Successfully recompleted a well and drilled a new well in 2013
o Both wells began production in late 2013
Began drilling a well expected to be complete in 2014
Has plans to drill 6 more wells throughout 2014
Daily production of 7 MMcf/d
Held approx. 131,000 developed net acres at YE 2013
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IX. Junggar Basin (China)
The Junggar basin covers an area of 62,000 mi2
located in the Xinjiang region of
northwestern China. The basin contains estimated technically recoverable resources of 5.4 Bbls
of oil and 17 Tcf of gas, which lies in the shale at an average depth of 10,000 feet. Both industry
and population are growing rapidly in the area, making the basin less remote than most in
China. The Junggar Basin’s highly prospective shale deposits are untested, which is surprising
considering infrastructure is already in place from conventional hydrocarbon production and its
close proximity to population centers such as the region capital, Urumqi. Initial data from the
ARI (Advanced Resources International) also suggests that the Junggar Basin may be China’s
best in terms of geology and reservoir potential, containing few faults, favorably high pressure,
and rich Permian shale prospects.
a. PetroChina
Joint venture with Hess Corp and Shell Oil
o 200,000 total acres
o One well drilled as of December 2013
o Further drilling planned for 2014
Still mostly in exploration phase
b. Petromin Resources
Pulled out of production sharing agreement with CNPC on July 7, 2014
o Believe CNPC made several infractions to the agreement
o Seeking damages
X. Songliao Basin (China)
The Songliao Basin is China’s largest oilfield and spans an area of 108,000 mi2
in the
northeast region of the country. The shale in the Songliao Basin can be found at an average
depth of 5,500 feet and contains estimated technically recoverable resources of 11.5 Bbls of oil
and 16 Tcf of gas. Conventional hydrocarbon production has dominated the Songliao Basin
since the mid-20th
century; however the shale revolution has led to the discovery of even more
resource potential in the basin. The shale in the basin is not China’s most prospective; complex
geologic structures and unfavorably clay-rich shale properties have kept shale exploration in
the Songliao Basin at a minimum.
a. PetroChina
Joint venture with Hess Corp
o 200,000 total acres
o Still in exploration phase
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b. Jilin Oilfield Company (CNPC)
Drilled and massively fractured 10 wells in mid-2013
o Wells reported successful
o Well statistics unavailable
Conclusion
While some international basins have already begun hydrocarbon production on a larger scale,
most are still undergoing prospecting and exploration. With operators preparing to make large
investments in these international unconventional plays mentioned in part 2, now is the time for oilfield
service companies, like NOV, to act.
Sources:
Energy Information Administration
Advanced Resources International
Operator’s investor presentations, 10-K forms, reports, other documents
Various web-based news articles/reports
Research and consultancy groups such as Wood Mackenzie and Barclays
Other oilfield service companies such as Baker Hughes