Can OPEC Break Shale Oil?

Summary

There is nothing Saudi Arabia or OPEC can do about shale oil over the long term.

At best they can only delay the inevitable.

Millions of barrels of shale oil will be introduced into the market over the next decade.

Companies with shale exposure, over time, will take market share away from OPEC.


From some of the headlines I've read recently, you would think the U.S. shale industry has been defeated by Saudi Arabia and OPEC, and everything in the oil sector going to return to where things were before shale producers entered the market.

Not only is this a fallacy, it is the exact opposite, which is why the strategy of oversupplying the market will remain in place for now in order to keep the price of oil low, which in turn makes it more difficult to invest in new exploration and development.

The idea of market share being the battleground being fought over is a misguided one because, that would suggest shale oil can be defeated around the world. It's not going to happen. It won't even happen in the U.S., let alone the world.

more on OPEC's war on shale oil

Marathon Oil (NYSE:MRO) Drilling 25 New Wells

Marathon Oil Drilling 25 New Oil Wells

Oil wells in the Oregon Basin have been producing oil for close to 100 years, and even though Marathon Oil (NYSE:MRO) hasn't been drilling there for a couple of years, they're poised to start again with a goal of drilling another 25 new wells in the region.

Along with the search for new oil, Marathon will also be employing new techniques to extract known oil resources for existing wells, possibly through the use of carbon dioxide or steam to push the oil to the surface; although that is more costly and will depend on market prices at the time whether it's feasible or not.

Crude in the Oregon Basin is called asphaltic crude, and is used in highway construction. Increased demand and prices make it worth the effort to start drilling for it again.

In general, this type of crude is close to 30 percent in value than light sweet crude, but that has narrowed recently, again, making it economically feasible to puruse by Marathon Oil and other energy companies.

Marathon Oil Drilling 25 New Oil Wells

Exxon Mobil (NYSE:XOM) Chasing Shale Fields

Exxon Mobil and Shale

Slow to get into the enormous potential represented by shale fields, Exxon Mobil has now smelled the roses and is sprinting to catch up with some of its rivals who have been quietly working to cut costs to extract oil and gas from teh shale.

This is why Exxon recently bid $31 billion to acquire XTO Energy (NYSE:XTO) to get back ahead of the curve. XTO is the leading company which extracts energy from what is called "unconventional" sources.

With most large discoveries behind oil and gas companies (possibly other than those under the ocean floor), large energy companies are looking for new sources of gas and oil, with shale being the next wave of source for the industry.

Exxon Mobil and Shale

ExxonMobil (NYSE:XOM) Shale Gas Deposits in Europe

ExxonMobil Shale Gas in Europe

After largely missing out on the huge amount of shale gas available in the U.S., large energy companies like ExxonMobil (NYSE:XOM) are now looking to the European continent as the place they can access large shale gas deposits.

If the amound of shale gas in the U.S. is any indicator, there could be an extraordinary amount in Europe as well, as the technology is now available to tap into it.

For ExxonMobil, their huge move into the shale gas sector was via its acquisition of XTO, which specializes in the field.

Even with the drop in the price of gas, over the long term the shale gas play should result in solid revenue and profits for those willing to invest with a long term horizon in mind.

The major challenge for those looking to Europe for shale gas is the industry infrastructure will need to be build up in order to process the gas, as there are only about 50 onshore gas-drilling rigs in Europe in contrast to the approximate 2,000 operating in the U.S.

ExxonMobil Shale Gas in Europe

$1.4 Billion Anadarko (NYSE: APC) Marcellus Shale Deal

Anadarko Petroleum Corp. Marcellus Shale

Anadarko Petroleum Corp. (NYSE: APC) sells Stake in $1.4 Billion U.S. Gas Deal Marcellus Shale natural gas project to Japanese trading company Mitsui & Co. for $1.4billion.

Mitsui says it'll invest a minimum of $3 billion to help move the estimated $25 billion gas project forward. The goal is to get gas production levels up to 460 million cubic feet a day.

As a result of the agreement, Mitsui will have a 32.5 percent stake in the assets of Anadarko, which is about 15.5 percent of the gas production project.

The lifespan of Marcellus Shale is projected at about 60 years, with production expected to peak sometime between 2018 and 2020.

Anadarko Petroleum Corp. Marcellus Shale