Researcher: 2014 slated to be most active year for global shale drilling

HOUSTON — This year is slated to be the most active year for international drilling yet, even as investors show less interest in risky ventures, a Wood Mackenzie researcher said this week.

Oil companies are planning to drill nearly 400 shale wells in countries outside of North America, with most in Argentina, China, Australia this year, according to Wood Mackenzie.

But only one in five global shale regions may succeed in producing significant amounts of oil and gas as countries from China to Argentina seek to emulate the U.S. boom, said Andrew Latham, Wood Mackenzie’s vice president for exploration research, in an interview in Australia this week, according to Bloomberg

“You hear people talk about lots of different basins,” Latham said. “It’s all good, but it’s all potential, and I’d be surprised if more than one in five plays that gets drilled ever becomes commercially significant in terms of production. You only get to be one of the five by drilling.”

Shale shift

Exxon Mobil stands out among the major integrated oil companies with unconventional oil and gas reserves on its balance sheet, but North American shale plays are still dominated by much smaller producers like Chesapeake Energy, Devon Energy, Anadarko Petroleum and Encana Corp. Wringing money out of shale plays has proven much harder for late-coming producers — mostly larger oil companies — than the independent producers like Anadarko, according to Wood Mackenzie.

Investors are trying to rein in wildcatters by demanding capital returns after oil companies spent years exploring new frontiers, urging them to shift investments to proven plays and away from more risky ventures like international shale plays, Andrew Latham, vice president of exploration for Wood Mackenzie, said in a written statement that accompanied a presentation at an industry event in Australia this week.

“The market wants more cash returned to shareholders at a time when rising costs and taxes have eaten into companies’ free cash flow,” Latham said. That trend, he said, will create a buyers’ market for energy assets as major integrated oil companies and independent producers “fine-tune their portfolios.”

The Houston energy research firm said in a report this week that investors are far less interested in expensive scouting expeditions to regions and plays with unsure outcomes, emphasizing instead well-developed oil plays that pay off far sooner than others.

“We think this year marks a change in exploration tactics, with the industry moving towards more valuable plays with higher returns,” Latham said. “Divestments of non-core assets will create a buyers’ market and provide widespread opportunities.”

Argentina has 200 shale wells scheduled for this year, followed by China with 60 and Australia with 25 wells slated to be drilled. Russia and Saudi Arabia both anticipate 20 shale wells. In Poland, oil companies are expected to drill 12 wells this year, according to Wood Mackenzie.

Bloomberg News contributed to this report.

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