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Independents take aim at oil shale

March 18, 2010
TOPICS: Crude oil
Gas-rich shales have been the recent focus of independent producers, and the expertise gained from gas production in the shale is now being used to drill for oil locked in similar formations.

From Reuters:

Two of the largest independents -- Chesapeake Energy and Anadarko Petroleum Corp -- are near the front of the pack of companies in the land grab.

"It's going to be the story of 2010," said one banker at a major investment bank, who said anything the companies can do to produce more oil would be a benefit for them.

"Independents are more bullish on the prospects of (crude oil prices) versus gas," he said.
Historically, crude oil has tended to trade between 9 to 11 times natural gas prices. But with crude at around $82 a barrel and natural gas at around $4.30 per million British thermal units, that ratio is currently 19 times natural gas prices.

In response to this imbalance, the independents are rushing to pick up acreage in shale plays like the Bakken, Eagle Ford and the newly-hot Niobrara that are rich with oil and natural gas liquids, which also command higher prices than "dry" natural gas.

"The technology is pretty much the same" to drill for oil or gas in shale, said Macquarie Research analyst Jason Gammel. "So if you can find an application that produces oil rather than gas, given how much of a premium oil trades to gas, that would be your preference."
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