?E&Ps were in a “feeding frenzy” in the first quarter as they “have lapped up acreage in shales across ?North America,” says Ben Dell, E&P analyst for Bernstein Research in New York.


Most Wall Street attention went to reports on the Marcellus shale in Appalachia, as well as the Fayetteville, Haynesville and Ootla in Canada, he says. Others are the Woodford and Barnett.?
During quarterly conference calls, shale was the word that investors were tuning in.


“Listening to the news flow during the quarter, one could have almost forgotten that oil and gas are produced from anything else but shale…,” he says.?The biggest shale story of the past decade, the Barnett, “is looking like old news, even though growth prospects there remain strong.”?


He warns, “Within the shale-gas madness, though, lurk two dangers for the E&Ps: overpaying and over-promising. Regarding costs, as E&Ps scramble to announce acreage acquisitions at ever-higher costs per acre, the danger of acquiring useless land is considerable.


“Land prices are rising in the Marcellus and other shales, and those who join late will be punished by high costs for worse acreage, since the better land will already be taken.” ?


Watch for pressure on finding and development (F&D) and operating costs, and a resurgence in land-driller revenue outlooks, since shale plays require horizontal drilling and fracing. “Since the land drillers’ revenues are the same dollars as the E&Ps’ F&D costs, they will rise in tandem.”?


He concludes, “The challenge for investors going forward is determining which shales are game changing and worth paying a premium for. While shales are abundant, the determining factor for the peer group’s performance is the ability to develop them at low F&D.”


He expects the Barnett and Marcellus may be exceptions, “but further well data will be required to determine whether other shales have comparable economics…In this respect, it is not having shale that matters, but the economics of the well.”