The remarkable achievements over the past few years in using horizontal wells with multiple hydraulic fractures to produce natural gas from shale have fundamentally altered the energy scene in North America. Now, shale oil, which only a few years ago was almost unheard of, is the target of the hottest new petroleum developments.

The move to oil and wet gas has been driven primarily by low natural gas prices in the U.S., which have resulted from successful development of shale gas and ongoing improvements in drilling and completion techniques.

Production in North America is growing rapidly; shale-oil and condensate production as of mid-2011 was about 570,000 barrels per day and is expected to rise to more than 2 million barrels daily by 2020. The wells are costly, generally US$7 million to $10 million per well, depending on the play. Nevertheless, most shale-oil wells are highly economic at current oil prices, and on average have similar breakeven prices to other unconventional resources such as Canadian oil sands and some deepwater, offshore projects.

Hart Energy’s recently released Global Shale Oil Study (co-written with Advanced Resources International) highlights the current state of shale-oil production in North America and provides a preliminary investigation of where shale oil may be produced outside of North America. Many shale plays contain both oil and gas, with the gas found in the deeper regions (see the vitrinite reflectance map of Argentina).

In North America, the Eagle Ford shale and Barnett shale plays contain oil, wet gas and dry gas. The Bakken shale is primarily an oil play, but it produces both oil and condensate. The progression from gas to oil is often gradual. Most shale-oil wells produce significant quantities of gas, and within a given play, wells with higher gas-to-oil ratios (GORs) generally have higher initial production rates and higher estimated ultimate recoveries (EURs) than lower GOR wells.

Shale oil is a new phenomenon—most shale-oil wells have been producing for three years or less, though there are wells in the Bakken and a small number of Barnett oil-window wells that have been producing longer.

However, a few observations can be made. Shale-oil wells exhibit wide variability in initial production rates and EURs, some of which can be attributed to fracturing techniques (i.e., multiple stages versus single stage).Within a play, higher GOR wells generally have higher initial production rates, although other factors also affect productivity, such as where in the vertical section the lateral was landed.

Outside of North America, we see oil potential in 85 basins throughout the world. The most promising plays for near-to-medium development are in Western Europe and Latin America, in particular France and Argentina. Argentina currently has the most shale-oil exploration activity.

In Western Europe, the Paris Basin in France holds significant shale-oil potential, but exploration has been suspended because the government has banned hydraulic fracturing. Shale-oil potential is also found in Spain, Germany and the U.K.

Other prospective areas for shale oil are found in North Africa, Australia, New Zealand, China and other countries. Exploration activities are beginning in North Africa, Australia and New Zealand.

There is very little data on shale plays over much of the world, so exploration and appraisal activities will be necessary before the full potential can be understood. We expect a more measured approach to appraising shale plays than has been the case in North America.

There is considerably more work to be done to understand both oil and gas shales, and some of this new understanding may come from outside North America. There is much to be learned, but there is also huge potential for shale gas and shale oil to alter the geopolitics of energy and provide energy security to more regions of the world.