The rest of the world has been watching with interest and envy as the US and Canada have hit the ground running with their efforts to access huge shale reserves in a remarkably quick and efficient fashion. Despite the public debates still swirling around the use of hydraulic fracturing, the amount of gas and unconventional oil being recovered from major shale formations such as the Bar-nett, Marcellus, Haynesville, Bakken, Eagle Ford, Utica, Mississippi Lime, and other areas is astonishing, as is the level of drilling activity required. US oil production from shale has grown to more than 500,000 b/d since 2009 and could reach 3 MMb/d by 2020.

This tremendous push by the upstream industry to unlock its unconventional reserves, much of it focused on gas, also has revealed and made accessible resources of shale oil that a couple of years ago were considered almost irretrievable thanks to advances in drilling and production technology.

These oil resources have real economic value, especially when the price of oil is compared to natural gas, making the latter far less profitable.

Russia and China keen to learn

With this in mind, major powers such as Russia and China have sent their state companies on missions to buy into and learn as much as they can about the technology of finding and producing shale oil and gas.

Almost all the strategic partnerships and agreements signed in the past year or so (Rosneft with ExxonMobil, Eni, and Statoil, for example) have specifically focused on the two technology areas that the majority of these national oil companies need to acquire more knowledge about – shale and deep water. Others, such as CNPC, CNOOC, and Statoil, simply bought companies with the required expertise so that they can learn the production methods required for tight oil.

Since 2008, China, India, and other foreign investors have sunk nearly US $25 billion into American shale oil and gas development, according to the Energy Information Administration (a research arm of the US Department of Energy).

The shale revolution is now on the cusp of taking off around the world, not only in Russia and China but also in South America (especially in Argentina), Europe, and Australia. Most industry observers believe that in acreage where there is both gas-prone and liquid-prone basins, shale oil exploration will naturally follow the lead of the shale gas exploration programs.

Unconventionals changing global energy landscape

The impact of shale and other unconventionals such as oil sands internationally was recognized earlier this year by Saudi Aramco.

CEO Khalid al-Falih said in a speech earlier this year that the level of unconventional oil being produced had removed much of the debate from several years ago about acute resource scarcity and the Saudi role. He further highlighted the industry's new emphasis on unconventional liquids and the fact that shale gas technologies also are being applied to shale oil.

Unconventional oil developments are dominated by the oil sands of the US and Canada, with 2011 global production amounting to 2.3 MMb/d.

This was a major factor in persuading Aramco not to increase its oil production capacity significantly in the mid-term (it was thinking about raising it to around 15 MMb/d), especially with additional rising conventional output from countries including Brazil (from its giant presalt reserves) and Iraq.

OPEC expects global output of unconventional oil to rise to 3.4 MMb/d by 2015, mostly dominated by oil sands; to 5.8 MMb/d by 2025; and to 8.4 MMb/d by 2035, when tight oil is forecast to play a much bigger contributing role.

By 2035 the US and Canada still are expected to dominate unconventional oil production with 6.6 MMb/d, but China, for example, is predicted to be possibly producing 1.1 MMb/d of its own unconventional oil by then, in addition to doubling natural gas production from its shale gas reserves, which it only recently began exploring.

In a recent report, OPEC estimated that global reserves of tight oil could be as high as 300 Bbbl. To put that into perspective, that is well above current estimates of Saudi Arabia's total conventional reserves of around 265 Bbbl.

This is largely subject to an increasing number of exploration programs either under way or planned in countries outside North America, including Australia, Canada, Poland, and France. The Ukraine and Russia also are planning campaigns to establish the size of their shale reserves.

Most companies believe that the shale success experienced in the US will be duplicated elsewhere to a greater or lesser extent. One of the biggest limiting factors will be the small number of companies presently with enough shale expertise, the constant battle to have enough trained personnel, and the limits on access to areas that will be imposed by some countries.

Kevin Carey, general manager, global deepwater and complex wells at Chevron, gave an insight into the equipment and personnel demands at the World Drilling Conference in Barcelona organized by the International Association of Drilling Contractors in June. "The impact of our unconventional portfolio on drilling and completions is such that we currently have 68 rigs in action. By 2017 that figure will be 130 rigs. We also will require a doubling in manpower between now and then, to around 800 drilling and completions staff by 2017," he said. That is a scenario being replicated in oil and gas companies large and small around the world.

China's strategic shale gale

In the global picture the two areas that most observers in the industry believe have the greatest potential are China and Russia, although both are at a very early stage in the cycle.

China has two shale pilot projects currently exploring for oil and gas. BP and Shell are already working with the Chinese, and several other international companies are seeking opportunities within the country's shale resources.

It is mostly gas that China is initially looking for. With technically recoverable shale gas reserves estimated by the EIA at 1,275 Tcf – more than the US – this is hardly surprising. After appraising 1.5 million sq km (579,153 sq miles) across the Chongqing, Hubei, Inner Mongolia, Shanxi, Shaanxi, Sichuan, and Xinjiang provinces, China's Ministry of Land and Resources estimates that shale formations there contain about 31 Tcm (1,094 Tcf) of natural gas.

Tight oil recoverable reserves, meanwhile, are estimated by China's own government research arms at around 300 Bbbl, with much of it believed to lie in eastern China. Several of the country's state-owned enterprises have been stepping up their focus on shale since 2007, with their attention focusing on the lacustrine rift basins.

With many thousands of wells drilled over a period of more than 50 years, the companies have excellent data to find shales, with eight favorable shale oil exploration plays having been identified so far in the country's eastern provinces. These include the Bohai Bay basin, Biyang depression, Songliao basin, Tarim basin, Jiyang sub-basin (Shandong), and the Yangtze platform.

Shell's China program

Of the western majors already there, Shell has been most active in the country's newly emerging shale frontier. Through Shell's production-sharing contract (PSC) with CNPC, the companies have undertaken programs covering the shooting of seismic and drilling exploration wells in the 3,500-sq-km (1,351-sq-mile) Fushun-Yongchuan block in the Sichuan basin. This partnership was strengthened last year by an agreement to work jointly on an automated well drilling and completion system. Last year, Shell sank $400 million on the drilling of 15 shale gas wells in China and has plans to sink up to 25 more by the end of this year, although results have been mixed.

CNPC expects output from this block to contribute significantly to its own stated goal of achieving 1 Bcm (35.3 Bcf) of annual shale gas production by 2015.

image of a Shell tight gas drilling facility in China

Shell’s activity in China includes tight gas drilling in Changbei. (Image courtesy of Shell)

Strategically, Shell and CNPC also have deepened their relationship, with the companies, along with Hess Corp., expected to sign a deal soon to jointly develop a shale oil block in China's Santanghu basin in the northwestern Xinjiang Uygur autonomous region. Low oil reserve content and immature domestic technology have so far curbed China's own attempts to increase output from the basin, where PetroChina has drilled more than 30 exploration wells with only moderate success.

Earlier this year, Shell also signed to buy Ivanhoe Energy's stakes in a PSC in the Zitong block in the Sichuan basin. In return, Shell sold PetroChina a 20% stake in its Montney shale acreage in Canada.

Another western player, Eni, also stepped up its efforts last year by signing a memorandum of understanding with PetroChina to collaborate on evaluating unconventional oil and gas plays in China. Hess is another that has signed a joint study agreement with Sinopec covering the evaluation of shale gas and oil potential in the Shengli oil field in east China, while Total signed a pre-agreement with Sinopec to explore for shale gas there.

Although China remains at a very early stage in its shale campaign, few doubt that it will not succeed. However, the speed at which it achieves this is open to more debate, with the lack of infrastructure, equipment, and expertise, as well as a lack of water for hydraulic fracturing, likely to dampen the initial pace of development.

Siberian shale

In Russia, meanwhile, there has been growing political as well as industry awareness of the rise of shale oil and gas.

Watching the shale revolution from Moscow, President Vladimir Putin is well aware of Russia's own huge potential shale plays. Western Siberia already is a mature conventional producing oil and gas province, but estimates have put one tight oil play – the Bazhenov – as having the potential to hold much more in terms of reserves than North Dakota's Bakken, for example.

The Bazhenov play itself covers 2.3 million sq km (888,030 sq miles), which is basically the size of Texas and the Gulf of Mexico put together. With such a large potential play to explore, many see this as one of the strategic reasons why western players such as ExxonMobil and Statoil made their technical agreements with Rosneft, which currently estimates reserves of 18 Bbbl on its own Bazhenov acreage.

With Russia already producing around 10 MMb/d, the Bazhenov has the potential to add a further 1 MMb/d to the total by 2020 if the country can prove the play and bring in enough rigs. The beauty of the area is, of course, that there is already a very established pipeline network for the whole Siberian area.

Tax incentives

Incentives are needed, of course, and this is where Putin revealed his long-term plan by announcing the tax incentives for tight oil earlier this year in Western Siberia.

The president mentioned a target figure of 2 MMb/d by 2020 from Western Siberia, and to achieve this Rosneft will have to employ the multistage fracing and infill drilling expertise of companies such as ExxonMobil and Statoil via their cooperative partnerships.

As part of Rosneft's deal with ExxonMobil, its independent subsidiary, RN Cardium Oil, acquired 30% of the major's stake in the Harmattan acreage in the Cardium formation of the Western Canada basin in Alberta, Canada. The Cardium formation is an active unconventional oil play in which ExxonMobil has a significant acreage position, and this is likely to be a vital source for the development of technologies for Russia's unconventional oil reservoirs. Crucially, ExxonMobil's deal specifically states that it enables the companies "to jointly develop tight oil production technologies in Western Siberia" and that it also will enable them to "later discuss undertaking joint projects to explore and develop prospective areas with unconventional oil potential in Russia," according to their official statement.

From Rosneft's perspective, the associated program of technical and management staff exchanges agreed to by the companies and their affiliates includes positions in geology, geoscience, field development, well drilling, finance, logistics, and HSE.

Statoil's cooperation agreement is similar, covering both large offshore Arctic areas in the Barents Sea and the Sea of Okhotsk but also onshore, including conducting joint technical studies on two Russian land assets.

The joint studies will focus on the North-Komsomolskoye heavy oil field in Western Siberia and the shale oil play in the Stavropol area in southwestern Russia, where Statoil can bring its unconventional experience from the US to the benefit of this proven but unappraised play.

The Stavropol area is run by Rosneft's unit Stavropolneftegaz, which is currently exploring and developing around 40 licensed blocks. As the majority of its conventional fields are significantly depleted, the company extensively employs enhanced recovery techniques to ensure stable production efficiency, according to Rosneft officials.

Offshore North Sea shale potential

Elsewhere in Europe (and outside of Poland, Romania, and Hungary, where exploration and appraisal activities are already under way), shale oil and gas is now being taken seriously in established mature offshore provinces like the North Sea.

The UK alone could have offshore reserves of shale gas exceeding 1,000 Tcf, five times the latest estimate of onshore shale gas of 200 Tcf. Although these are early estimates, Nigel Smith, subsurface geologist and geophysicist at the British Geological Survey (BGS), said earlier this year, "There will be a lot more offshore shale gas and oil resources than onshore." Offshore geological information was already available and was superior to onshore shale reserves data, he said.

map of the Bazhenov play in Western Siberia

The Bazhenov play in Western Siberia is said to be 80 times bigger than the Bakken play in the US. (Image courtesy of USGS)

That would obviously help overcome the controversy and concern that is still prevalent throughout Europe over the use of fracing. It is banned in France, for example. Smith told the British government's House of Commons shale gas energy and climate change committee earlier this year that Britain could become energy self-sufficient if it went offshore with its unconventional oil and gas industry.

The parliamentary committee responded, "We recommend that [the UK Ministry's] Department of Energy and Climate Change encourage the development of the offshore shale gas industry in the UK, working with HM Treasury to explore the impacts of tax breaks to the sector."

"We have potentially huge volumes present in the subsurface – the volumes are mind-blowingly big," said Melvyn Giles, global head of unconventional gas and light tight oil at Shell, commenting to Reuters on Europe's unconventional gas resources. "The figures appear to sug-

gest the shale resources are so large that the question is not how much is out there but how much can be retrieved – how much can be economically accessed in an environmentally acceptable way," he added.

Scientists have known for years that shale and other common forms of rock in Europe held hydrocarbons, but until recently they were ignored as either insignificant or uneconomic.

Schlumberger noted in one research report that there are large shale oil and gas reserves in the North Sea – along the German, Dutch, and Danish coasts – as well as in the Baltic basin.

An offshore future would sidestep many of the legal and regulatory challenges that the industry would otherwise face in Europe, but the costs of producing shale oil offshore are as yet not defined and could be prohibitively high until technology further matures.

Australia attracts attention

On the other side of the world, Australia's shale oil and gas is proving attractive to several of the western majors. ConocoPhillips is interested in further shale investments in Australia after a partnership with New Standard Energy Ltd.

The companies are exploring in the Canning basin in Western Australia, where they have high hopes, while the Cooper basin in central Australia also is believed to have potential.

Also active in Australia are BG Group, Mitsubishi, and Hess. All have agreed to fund shale exploration campaigns through various ventures.

Many are doing this in a bid to become "first movers" in an area where they expect prices (like in the US) to start rising for shale oil and gas properties. With shale assets in Texas selling for around $25,000, the prices in Australia look a whole lot better. According to data compiled by Bloomberg and DNB Markets, shale properties owned by Australian independent Beach Energy Ltd. can be bought for $406/acre.

Tap Oil is exploring onshore in the Carnarvon basin for shale gas reserves, while Buru Energy is close to extracting oil in the Kimberley basin. Tap entered into an agreement

with Rusa Resources earlier this year for shale gas exploration covering more than 38,000 sq km (14,670 sq miles) near the Dampier and Bunbury natural gas pipelines, and Tap experts indicate that Devonian shale oil also will be targeted in the development.

Falcon Oil & Gas focuses on opportunities outside of North America and recently highlighted the Beetaloo basin in Australia's Northern Territory, which is equivalent in size to the net acreage of the Bakken play in North Dakota. Falcon has four licenses covering the majority of the basin and drilled one well, Shenandoah-1, with estimated recoverable reserves of 18 Bbbl of oil and 64 Tcf of gas.

Falcon has a joint venture deal with Hess for the majority of its acreage, with a seismic program currently under way and an option to drill five wells in 2013.

Australian independent Exoma Energy Ltd., meanwhile, is pushing its central Queensland permits. It went on record late last year saying that testing of core recovered from one well had confirmed the Toolebuc shale is generating oil and associated gas in its permits. Exoma drilled three core wells in the ATP 999 P permit last year (Bessies-1, Euston-1, and Katherine-1) specifically targeting the Toolebuc shale.

The data from Exoma's 2011 program provides the first systematic technical confirmation that the Toolebuc shale contains liquid hydrocarbons, bitumen, and associated gas, it added. Based on the laboratory analysis of the Toolebuc shale core from Bessies-1, the oil-in-place of the shale at that location appeared to be comparable to that of the US Bakken shale in North Dakota. The company is carrying out further appraisal of the commercial potential of the Toolebuc play throughout 2012.

Interestingly, Exoma already is partnered with CNOOC subsidiary CNOOC Galilee Gas Co. Pty Ltd. The Chinese player linked up with Exoma in late 2010 and is earning its participating 50% interest in five permits in the Galilee basin via a farm-in where it is paying $50 million toward exploration and appraisal expenditures to August 2013.