Tuesday, October 20, 2009
Toby Shute :: Townhall.com Columnist
The Amazing Shale Race
by Toby Shute
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Back in July, in an email exchange with Foolish oil patch pro carbonates, I threw out the following idea: "If I were in exploration, I feel like I'd be looking for shale plays over in Europe. Given the urgency to wean off Russian gas, it seems like the wind would really be at one's back."

My correspondent heartily agreed, saying that it's "just a matter of time before gas shales become common plays in every part of the world."

We've documented Royal Dutch Shell 's (NYSE: RDS-A) move on the Montney, BG Group 's hitch-up to the Haynesville, and of course BP 's (NYSE: BP) and StatoilHydro 's (NYSE: STO) joint ventures with Chesapeake Energy (NYSE: CHK) in twoof the big U.S. shale plays. As the international exploration alliance between the latter two makes quite clear, the Europeans are seeking knowledge that they can transfer to plays in Europe and elsewhere around the world. They're not alone, as we'll see.

From academia to government, and from small independent-exploration shops to the world's oil-and-gas supermajors, this idea of shale gas as a global game-changer really seems to be gaining traction.

The Germans head to Houston
Rice University's Baker Institute recently hosted Christian Wulff, prime minister of the state of Lower Saxony in Germany, who delivered a speech on the importance of unconventional resources and renewable energy for a cleaner future. But his Excellency didn't travel all the way to Texas just to deliver a feel-good presentation. Like Texas, Lower Saxony is a major domestic supplier of both natural gas and wind energy. An executive from Horizon Wind Energy was on hand to discuss ways to structure policy to spur growth at the lowest cost, and event sponsor ExxonMobil (NYSE: XOM) had its president of exploration on hand to discuss the global significance of unconventional gas.

After meeting with ExxonMobil representatives, Wulff announced that the company will spend at least 100 million euros on unconventional gas drilling in Lower Saxony before next summer. The company began drilling there last year, and it seems very keen on this basin, across which Exxon acquired 1.3 million acres of leasehold in 2007. That's almost as big as Chesapeake's position in the massive Marcellus shale.

Conoco turns its eyes east
In August, ConocoPhillips (NYSE: COP) announced that it's farmed into a million-acre license area held by a small private operator in Poland's Baltic Basin. The partners began seismic shooting in July and expect to begin drilling in the first quarter of 2010. A concession map reveals that adjacent or nearby acreage holders include BNK Petroleum and CalEnergy, a subsidiary of MidAmerican Energy. Yes, even if you're tired of him, it appears that Mr. Buffett's in on the shale race, too.

Following Conoco's Poland deal, Exxon confirmed that it has also grabbed acreage in the country. The rock looks good, royalty rates are low, infrastructure is in place, and gas-hungry Western Europe is right nearby. As Conoco's exploration chief put it, "What's not to like about this type of play?"

Conoco has cast its shale sights even further east lately, in announcing a cooperation agreement with PetroChina (NYSE: PTR) parent CNPC to develop the gas resource in Sichuan province. The company thus joins the Statoil/Chesapeake joint venture and others potentially seeking their shale fortune in the Middle Kingdom. Continued...

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About The Author

Toby Shute is a Motley Fool contributor.

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