Small firms, not big guns, drive US shale revolution

The US shale revolution was driven not by the oil industry's big guns, but by small, independent companies that pounced on the opportunity presented by high gas prices and innovative production techniques.

Smaller outfits often break new ground in the oil game, as they are more nimble and willing to take bigger risks. But as the price of natural gas came crashing down due to surging production, shale started to move into the mainstream and the oil majors started paying more attention.

Shale, as part of the unconventional oil and gas spectrum, looks a secure investment in times where gas is a sought-after commodity for power generation and petrochemicals, and the oil price remains stubbornly high.

Last week, US major Chevron signed a US$1.5bn agreement with Argentina's state oil company YPF to develop the country's shale oil deposits.

Royal-Dutch Shell has been active in assessing Jordan's shale potential since 2009 and last month moved to the initial appraisal stage of its concession area.

Also last month, BP and the Omani government agreed on a gas price for the Khazzan project, where the UK major seeks to produce tight gas from rock formations similar to shale.

Analysts believe there will be a lot more involvement by international oil companies (IOCs) in shale projects in the future.

"They will play a very important role in the capital-intensive development stage, but not in the exploratory or delineation phases," says Raoul Leblanc, the managing director at IHS Energy Insight.

"They are too slow and risk-intolerant for that."

In the quest for new sources of oil and gas, shale is proving to be cheaper than some of the alternatives.

"We see marginal barrel costs of shale oil at around US$70 to $80 per barrel, so what IOCs will do is go for shale oil now, instead of going to the Arctic, for example," says Alexander Pögl, an analyst at JBC Energy.

The entry of majors into more shale plays could prove conservative estimates for future production wrong, he adds.

The technique used to extract hydrocarbons from shale - hydraulic fracturing, or fracking - is well understood, and IOCs are adept at appraising reservoirs. The risk for shale projects is often more manageable than the political risk in countries where a lot of the world's conventional oil lies.

"Its increasingly difficult for IOCs to go to geopolitically risky areas, such as the Middle East. For those companies it is very difficult to assess the geopolitical risk. Technical risk is much easier for them to assess," said Johannes Gross, also an analyst for JBC Energy.