US shale reserves have aroused much excitement among E&P companies. EIA added fuel to this hype with its recent report declaring that US had the second largest shale reserves in the world comprising a total of 58 billion barrels.

Europe Shale

However, there are a number of factors to consider before shale can be made commercially viable. Some analysts feel that shale is not a long-term and sustainable option as it requires producers to invest too much to continue production. It is also noted that shale oil extraction reduces by about 70 percebt after the first year, said Mike Tims, Chairman of Canadian Investment Bank.

Shale Production Continues

Despite such pessimism displayed by some, shale production continues, especially in the basins of Permian, Eagle Ford, Bakken and Utica.

As per Baker Hughes numbers, the largest number of shale rigs are operational in the Permian basin. Eagle Ford is the second largest, followed by Williston as shown by the numbers in the following table.

Table 1: Number of Rigs for Shale Extraction

Source: Baker Hughes, 2013
Source: Baker Hughes, 2013

Crude oil production in the Bakken basin has been growing significantly since 2006. In 2011, production from the Bakken basin contributed about 5.9 percent to the total production of United States on production per day basis. Continental Resources is the largest player in the Bakken basin, holding 81 of the 621 extraction permits issued for Bakken and 1,200 miles of acreage under its control.

Chevron Corporation Holds The Largest Share

Chevron Corporation (NYSE:CVX) holds the largest share in terms of total acreage in the four major shale basins of Eagleford, Utica, Bakken and Permian. Chevron Corporation (NYSE:CVX) holds 2,100 acres combined in Utica and Permian and it is followed in ranking by Occidental Petroleum Corporation (NYSE:OXY), Apache Corporation (NYSE:APA), ConocoPhillips (NYSE:COP) and EOG Resources Inc (NYSE:EOG) The biggest share is held by EOG Resources, Chesapeake Energy Corporation (NYSE:CHK) and Occidental Petroleum Corporation (NYSE:OXY) in Eagleford, Utica and Permian respectively.

Table 2: Acreage in Eagleford, Utica, Bakken and Permian of Different Companies

Source: Bloomberg
Source: Bloomberg

These companies are continuing investment in shale and are earning good margins as the Bakken shale and Utica shale continue to sell at market competitive rates. It earns higher prices than Canadian oil and is profitable despite the high exploration and production costs involved.

Figure 1: Bakken UTC Price versus Other Market Benchmarks

Source: Bloomberg
Source: Bloomberg

Whether this price trend will continue to grow depends on a number of factors including the total US supply, global supply, US demand and global trend in commodity prices. Oil prices are expected to decline in the medium-run as indicated by fundamentals. While E&P giants are investing in shale as an alternate source of fuel, they can only continue to do so if they can lower their production costs and make shale extraction feasible in the long-run.