Don't Confuse These Two Oil Shale Plays
Source: Keith Kohl, Energy & Capital (12/28/09)
It turned out to be a serious case of mistaken identity. During the last few weeks, I've seen a lot of my new readers making one huge mistake. Truth be told, it wasn't their fault. Here's what happened. . .
During the last few weeks, I've seen a lot of my new readers making one huge mistake. Truth be told, it wasn't their fault. Here's what happened. . .
The last time I talked about the Bakken oil formation in North Dakota, my inbox was quickly flooded by a lot of hesitant investors.
Without getting into some of the ugly details, let's just say a few unloaded a laundry list of problems they had with the article.
However, something just didn't seem right. And I couldn't pinpoint the problem at first. The devil was in the details.
Among the rants and lectures about how oil shales are a bad investment, a thought suddenly struck me. We were talking about two completely different plays.
The thing that caught my eye was from one gentleman in particular. He started to chastise me, saying that "we'll never develop the trillions of barrels of oil shale in the Bakken, no matter how much money we throw at it. If you're like me, that number felt like it came out of nowhere. We all know that 2 trillion barrels of oil in the Bakken oil formation is a gross exaggeration."
There is, however, roughly 2 trillion barrels of oil nearby. However, you absolutely should not confuse the oil shale deposits in Wyoming, Colorado and Utah with the Bakken oil formation. Mixing up those two oil plays could end up costing you a fortune.
Today, I want to set the record straight and make sure the same mistake isn't made twice.
The Green River Investment Sinkhole
A day late, a dollar short.
That's how I like to describe the Green River oil formation. Back in April, I called it an investment sinkhole - and my feelings haven't changed in the slightest.
Buried beneath Wyoming, Colorado and Utah are fine-grained sedimentary rocks that hold a considerable amount of kerogen. Kerogen is simply the bituminous material that can be heated to release petroleum-like liquids. Oddly enough, geologists don't necessarily classify this as either shale, and the kerogen isn't the same thing as crude oil.
And believe me, dear reader, it's very easy to get caught up in the numbers.
There's more than three trillion barrels of this oil shale across the world. Sounds good, right? For U.S. investors, the numbers get even better. More than 60% of that oil is located within the Green River formation. Furthermore, nearly three-quarters of that deposit is located on federally owned land.
Naturally, you're also bound to hear about how this deposit will save the U.S. from its dependence on foreign oil. I've been told many times that production from the Green River Formation could reach 5 million barrels per day and satisfy one-quarter of our demand in the future. As if that weren't enough, they also tell me that production could last 400 years.
That's the point when I can no longer keep a straight face.
So if I'm understanding this correctly, they're assuming that U.S. demand will remain flat for decades to come, that production will reach five million barrels per day, and that production will be maintained for 400 years.
Feel free to take a moment to compose yourself.
Now let reality set-in. Your investments will thank you later.
Don't get me wrong, I'd love nothing more than to say we have 800 billion barrels of recoverable oil at our fingertips.
Unfortunately, it simply won't happen.
Here's a brief rundown of the production process:
There's two ways to extract all that oil, either through surface retorting (the process of heating up the oil shale) or in-situ retorting. Surface mining is just that: the mined oil shale is sent to a to a retorting facility that will separate the oil shale. After that process, the oil has to be further upgraded before it is transported to a refinery.
The in-situ process is pretty much what it sounds like. The idea is to heat the oil shale underground using electric heaters. The process lasts for several years, during which the oil is heated to about 700o F.
I'll let you make up your own mind about investing in the Green River Formation. If you have a different opinion on putting your hard earned money into this play, I'd love to hear from you. You can weigh-in on the matter by clicking on the comment button at the bottom. As bullish as I am on oil, the sensible move is to stay out of this region.
The Bakken Shale Oil
You'd be surprised at how many people have mistaken the Green River oil shales with the Bakken formation. And in case you haven't noticed yet, there's a huge difference. As most of you are aware, the Bakken formation stretches across Montana, North Dakota and Saskatchewan. Although I've talked about the Canadian side of the Bakken in the past, for now I'm going to stick with the U.S. portion.
Bakken isn't new. In fact, companies have known about the formation since the 1950s. But that oil was practically untouched until two technological breakthroughs took place: horizontal drilling and hydraulic fracturing (I'll get more in-depth with these techniques next week). Up until 2007, only 105 million barrels had been produced from the formation.
However, the rush to develop the Bakken really started to heat up after an assessment was released by the U.S. Geological Survey. As many of you know, the report estimated that up to 4.3 billion barrels of technically recoverable oil was in the Bakken.
Even though the amount is much lower than the 800 billion barrels of recoverable oil in the Green River formation, the difference is that the Bakken is actually producing oil. And when it comes to the Bakken, we're talking about light, sweet crude.
Believe me, the last thing I want to see are investors confusing the two. Of course, you have options, too. There are the big players like like EOG Resources (NYSE: EOG) and Whiting Petroleum (NYSE: WLL).
However, I think the real gems are the up-and-coming players that are just now getting noticed. One company in particular has been flying under everyone else's radar. In this free report, I'll show you which player that has posted a 45% for my readers in a matter of days. To read more on this, simply click here.
No matter what move you decide to make, just be sure you sure you have your facts straight. It could end up costing you a fortune.
Until next time,
Energy and Capital