Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Big Oil Companies Entering the Shale Natural Gas Arena

Companies / Oil Companies Mar 26, 2010 - 02:14 PM GMT

By: Hans_Wagner


Best Financial Markets Analysis ArticleSuccessful exploration of natural gas from shale has contributed to a drop in natural gas prices during the past two years. Yet the large energy companies have taken notice of the potential from natural gas from shale, lead by Exxon’s acquisition of XTO Energy and the Total/Chesapeake joint venture. Does the move by “Big Oil” indicate a strong future for shale based natural gas?

According to the Energy Information Administration, the weekly update for February 19, 2010 shows the amount of working gas in storage is nearing the average of the last five years. Working gas in storage was 1,853 Billion cubic feet (Bcf) as of Friday, February 19, 2010, according to EIA estimates. This represents a net decline of 172 Bcf from the previous week. Stocks were 56 Bcf less than last year at this time and 13 Bcf above the 5-year average of 1,840 Bcf. Throughout 2009 gas in storage set new five-year records primarily from shale gas production.

As the volume of gas in storage falls, you would expect the number of natural gas rigs to increase. As of Friday, February 19, the natural gas rotary rig count rose to 893, an increase of 2 from the previous week, according to Baker Hughes Incorporated data. This marks the eighth consecutive week that the natural gas rig count has risen, and is now at its highest level since March 6, 2009. The natural gas horizontal rig count totaled 524 as of February 5, the highest level in the past two years for which data are available. The increase in horizontal rigs could be indicative of changes in drilling technology, as well as the increasing influence of natural gas production from shale formations.

Conversely, the natural gas vertical rig count was at 198 on February 5, having largely dropped off from levels above 700 two years ago. According to data from Baker Hughes released on February 5, 2010, total active rigs in key natural gas basins have been increasing over the past year, after dropping off from highs in late summer of 2008. However, rig counts in the Louisiana-Mississippi Salt Basins (Haynesville Shale) and Appalachian areas are currently at highs of 138 and 116, respectively, over the 2 years for which data are available.

Increased drilling activities accompany the need for more capital to fund lease purchases, as well as exploration and production activities. The problem is many analysts believe that natural gas from shale has yet to be cash flow positive. The independents focused much of their capital on acquisition of acreage. Now they must shift to exploration and production to generate sufficient returns. The problem is the production profiles of many of these shale natural gas fields might not achieve historical trends. While their initial flow rates are impressive, these fields have experienced a more rapid production decline that more normal fields, indicating the shale plays may not be as cash flow positive as many expect.

As a result, many independents are looking for ways to exploit their large investments in natural gas shale acres without increasing their capital requirements. Along come the big energy companies with their vast amount of capital. The large companies are exchanging their capital for access to horizontal drilling and hydraulic fracturing technologies. Big oil wants to develop their expertise in shale exploration and production to take it globally.

With high acreage costs, large royalty payments, and expensive production wells, many analysts question the ability of the independent natural gas companies to generate a profit at current price levels. Many analysts believe gas prices must rise to the $7 to $8 per Million cubic feet (Mcf) level before the gas producers can make a profit.

Exxon’s purchase of XTO at a 25% premium indicates that the major oil companies believe that shale has a future. The major oil companies have the financial resources to weather lower gas prices. By acquiring the expertise that the independent’s posses in developing gas shale, the majors are looking to find and produce gas from U.S. Canadian and other international plays. Therefore, we should look for additional acquisitions and joint ventures in the months to come.

By Hans Wagner

My Name is Hans Wagner and as a long time investor, I was fortunate to retire at 55. I believe you can employ simple investment principles to find and evaluate companies before committing one's hard earned money. Recently, after my children and their friends graduated from college, I found my self helping them to learn about the stock market and investing in stocks. As a result I created a website that provides a growing set of information on many investing topics along with sample portfolios that consistently beat the market at

Copyright © 2010 Hans Wagner

If you wish to learn more on evaluating the market cycles, I suggest you read:

Ahead of the Curve: A Commonsense Guide to Forecasting Business and Market Cycles by Joe Ellis is an excellent book on how to predict macro moves of the market.

Unexpected Returns: Understanding Secular Stock Market Cycles by Ed Easterling.  One of the best, easy-to-read, study of stock market cycles of which I know.

The Disciplined Trader: Developing Winning Attitudes by Mark Douglas.  Controlling ones attitudes and emotions are crucial if you are to be a successful trader.

Hans Wagner Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in