The U.S. is receiving a lot of interest from international explorers for shale investments, but with every ying, there is a yang...
Concerns for a U.S. shale bubble grows as prices for oil and natural-gas shales surged in 2011. One case actually had shale rising 10-fold in just five weeks. With this rates of ascending prices, there are some that feel the bubble will come soon as valuations of drilling acreage nears the peak set before the collapse of Lehman Brothers Holdings Inc.
So the question is: when did the U.S. become the place to be for natural gas and oil?
Energy explores from countries such as China, France and Japan have totaled more than $8 billion in the past two weeks, alone, to shale-rock formations. These formations range from Marcellus and Utica in Pennsylvania to Eagle Ford and Barnett formations in Texas, and they have set records for international average crude prices and U.S. gas demand in 2011.
Increased exports, reducing the trade deficit and creating jobs are three big benefits to the natural gas boom happening in the U.S. but the push to export gas would be happening regardless of the new foreign investment. Some feel that the boom will continue to be beneficial, like the Department of Energy, who is currently reviewing eight applications to build natural gas export terminals, a complete 180 flip from five years ago when plans called for importing natural gas.
Now competition among buyers has grown significantly and international investors are paying a pretty penny for potentially useless fields that have yet to be drilled to assess production.
But these companies' careless preparation and research on the U.S. fields are not worrying anyone when they are dropping thousands of dollars for lackluster fields.
Last week, Japanese commodity trader Marubeni Corp. (8002) agreed to pay up to $25,000 an acre for a stake in Hunt Oil Co.'s Eagle Ford shale property in Texas.
From Bloomberg,
The price, which includes future drilling costs, exceeds the $21,000 an acre Marathon Oil Corp. (MRO) paid last year for nearby prospects owned by KKR & Co. (KKR)’s Hilcorp Resources Holdings LP. In the Utica shale of Ohio and Pennsylvania, deal prices jumped 10-fold in five weeks to almost $15,000 an acre, according to IHS figures.
“I don’t feel confident that the prices being paid now are justified,” Del Pozzo said in a telephone interview from Norwalk, Connecticut. “I’m wary.”
New resources are being found frequently in the U.S. and the world's largest energy producers are drooling over prospective drilling sites.
Exxon Mobil Corp. (XOM) and Royal Dutch Shell Plc (RDSA) are back in the U.S. revisiting prospects that were looked over for decades in favor of deep-water finds around the world, like West Africa and the Gulf of Mexico.
But now new drilling techniques developed in the Barnett shale of north Texas are reeling investors back to the States. Enabled companies are coming back with their tails between their legs for passing up on previously-inaccessible formations to now find prosperous sites.
According to the government's Energy Department, the U.S. has 2,543 trillion cubic feet of gas (by estimate), enough to meet domestic demand for more than a century at current rates of consumption.
How that shakes out, shale accounts for 862 trillion or 34% of that total while in China, shale formations hold an estimated 1,275 trillion cubic feet of gas. That is 12 times more than the country's “conventional” fields.
And now China wants in on the U.S., as explorers China Petrochemical Corp. and Total SA (FP) are trying to learn from U.S. partners the tricks of the trade, like the techniques from the Barnett formation. These companies look to exploit vast shale resources in Europe and Asia. Clark Sackschewsky, partner in the consultancy BDO's natural reources group says, "these foreign companies are coming in and saying 'we've got the money, we want to learn from you.'"
The buying spree is likely to continue because international oil producers are eager to amass reserves in the U.S., which surpassed Russia in 2010 as the world’s largest source of gas, said Christian O’Neill, an analyst at Bloomberg Industries in Princeton, New Jersey.
Oil production also has blossomed in the world’s largest economy, rising to a 9-year high of 5.78 million barrels a day in October, the most recent month for which the Energy Department in Washington has figures.
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