Insight: The Cline Shale

Insight: The Cline Shale

November 1, 2013
 

Is there life after Eagle Ford and Bakken? If the analysts at Barclays and other forecast firms are right, then 2014 may be the year for explosive growth, and it won’t just be coming from the two major plays. 

In a Wall Street Journal article1, analysts at Barclays believe that we are entering “a prolific period of activity in the U.S. land basins. The key takeaway is that spending in the U.S. oil plays is poised to increase significantly in 2014.”

The area for most growth, according to them, will be Texas’ Permian Basin. One area in particular seems to be getting the most attention: the Cline Shale, located on the eastern shelf. If current projections are right, the Cline may eventually dwarf the Eagle Ford and the Bakken in North Dakota.

Here are the facts: The Cline Shale covers approximately 1.6 million acres in the Permian Basin, at a depth of 9,000 to 11,000 feet. Like many shale formations, it is not very thick, with the narrowest area at 200 feet and the thickest at 550 feet (the equivalent of ten Eagle Ford formations stacked together). To the south, it underlies the Wolf Camp play. The oil produced from the Cline falls between 38 to 42 degrees in API gravity, making it of the light sweet variety, much like Eagle Ford crude.

clineshalealliance.com

Although it is still too early to say with certainty—there are only about 100 horizontal wells drilled to date—some experts believe that the Cline may contain more than 30 billion technically recoverable barrels of oil. This projection is triple the (ever-increasing) estimate for the Bakken, which stands at 11 billion; Eagle Ford stands at 10 billion barrels. Even if these projections are optimistic, and the play ends up closer to the two other major plays in the U.S., it will still become a significant source for jobs and business opportunities for many years to come.

At this point, the biggest players in the Cline are2:

  • Devon Energy Corp. (DVN) in partnership with Sumitomo Corporation — about 650,000 net acres
  • Apache Corp. (APA) — 520,000 net acres
  • Laredo Petroleum Holdings (LPI) — 142,000 net acres
  • Range Resources (RRC) — 100,000 net acres
  • Clayton Williams Energy (CWEI) — 40,000 net acres

Rigzone recently reported initial Cline production results3 for a number of large wells, and they definitely seem encouraging: 400-800 barrels of oil per day with 60 to 75% oil production. These results were amassed from reports coming from Devon, Apache, Callon Petroleum, and Gulport Energy. Devon in particular, has had impressive figures, having invested $1.4 billion by giving Japan’s Sumitomo Corporation a 30% interest.

The area is certainly encouraging further exploration, as the resultant tax revenue could be a windfall for many years to come. Like in the Eagle Ford, a multitude of businesses connected to oil and gas, as well as in services and hospitality, can expect a huge rise in demand. The Cline Shale Alliance4, a group set-up to attract this new commerce, touts the area’s recently upgraded transmission infrastructure, $9 billion, as well as “…An extensive rail and highway transportation network, multiple universities, colleges [with] technical training expertise, and a favorable climate (in weather and in business opportunities) for your energy investments.”

Of course, there are always challenges to explosive growth, and if one estimate5—50,000 jobs, $30 billion annual economic impact—holds true for the exploration window (20 years), housing and infrastructure will have to keep-up to meet the demand. This time around though, it seems that the local governments, who experienced a boom and bust cycle decades earlier, will be better prepared to manage these challenges. In a StateImpact Texas article6, Bill Lavers, executive director of the Development Corporation of Snyder, said “We want to be ahead of the game, and come together to plan for what our community and citizens are going to need during this time.”

When it comes to the Cline Shale, it seems that all players involved are striving to be “ahead of the game.” Whether the projections end up becoming reality remains to be seen; however, for independent players the region’s vast potential may be too good to pass up.

 

1 Claudia Assis, “Barclays: U.S. shale drilling offers more upside for oil-field services,” Wall Street Journal: Market Watch http://blogs.marketwatch.com/energy-ticker/2013/10/29/barclays-u-s-shale-drilling-offers-more-upside-for-oil-field-services (accessed 30 Oct. 2013).
2 Seeking Alpha, “The Cline Shale May Be Triple The Bakken, Companies To Consider,” http://seekingalpha.com/article/1705432-the-cline-shale-may-be-triple-the-bakken-companies-to-consider (accessed 30 Oct. 2013).
3 Karen Boman, “Future Looks Bright for Cline Shale Potential,” Rigzone, http://www.rigzone.com/news/oil_gas/a/127338/Future_Looks_Bright_for_Cline_Shale_Potential/?all=HG2 (accessed 30 Oct. 2013).
4 Cline Shale Alliance, http://www.clineshalealliance/About_the_Cline_Shale.html (accessed 30 Oct. 2013).
5 Chris Faulkner, quoted in Karen Boman, Rigzone article cited above.
6 Stateimpact Texas, “What is the Cline Shale?” http://stateimpact.npr.org/texas/tag/cline-shale (accessed 30 Oct. 2013).