‘I had to kick their butts to get it done and now it’s a tremendous asset to the entire country.’ So said George Mitchell, the man whose discovery unlocked a whole new supply of gas for the United States of America.
It happened by accident. For years geologists were unable to work out how to extract the gas that they knew was contained in the dense, jet black rock that lay below North Texas. This rock is known as Barnett Shale, named after pioneer settler John Barnett, and is beneath 5,000 square miles of the State. Shale is an organic rich rock, deposited by a major worldwide flooding event over three hundred million years ago. Because, like slate, it is a sedimentary rock, it is dense and heavy. So it is not easy to suck gas from it especially as, while some of this gas resides in the minute pores in the rock, the remainder is a solid solution bound onto the grains of the rock.
For years prospectors thought that the only way of extracting this gas was to pump other gas into the rock. Then one day Mitchell had a different idea. ’Why don’t we just pump water into the well and see what happens?’ he asked. And something did happen. The gas started to flow. And he became very rich.
Almost by accident Mitchell had discovered a method of fracturing the shale several hundred feet below the surface, allowing the gas to slowly seep through the minute fissures and up to the surface. Allied to new techniques for horizontal drilling a whole new opportunity was created for the energy industry. With the cost of imported energy rising ever higher, shale gas is now the USA’s fastest growing energy sector. There were only two hundred well bores on the Barnett Shales in 2000. Today there are seven thousand.
A small AIM-listed company with its eye on the potential of shale is Irvine Energy. It has interests in a portfolio of 162,000 acres of land in Kansas and Oklahoma of which its net interest is 111,250 acres. 50,000 acres of this is in Oklahoma, above the Chattanooga shale deposit that forms part of the band of shale rock stretching from the central south of the USA to Michigan and the Appalachian basin in the north east. The Chattanooga shale deposit has already been successfully drilled in Arkansas by Southwest energy and in Oklahoma by Devon Energy and Newfield.
Increasing production
Working alongside partner Metro Energy, Irvine has a 78% net revenue interest in the Oklahoma acreage, which has the potential of ‘stacked pay zones.’ What this means is that there could be hydrocarbons at different levels below ground. At depths of between 1,500 and 4,500 feet it has identified conventional oil and gas formations (where the hydrocarbons have already migrated upwards through porous rock until becoming trapped). It has also identified gas in shale at depths of 2,800-4,000 feet and a coal and coal bed methane deposit at 500-2,200 feet. The exploitation of the coal bed methane resource may be tackled alongside a partner, because this energy source requires careful handling. It can, for instance, be necessary to pump contaminated water from the coal seam before extracting the gas.
Irvine’s main focus now is on increasing production and the proven reserves within its acreage. Already it is producing oil and gas from conventional sources in Oklahoma, at a net daily rate of 600mcf to Irvine, while in Kansas it will shortly be producing gas from twenty wells in the north west of the state, and is targeting a production rate of 500mcft per day net to Irvine. Meanwhile, as production is ramped up here, Irvine will be drilling over one hundred wells in the next eighteen months in Kansas and Oklahoma based on seismic interpretation of its existing acreage.
Depending upon its success rate Irvine could dramatically increase its reserve base by the end of next year. At just 2.5p the share price values the company at about £18m. But recent transactions in the industry have valued resources in the ground at $2-3 per mcf. Based on this broker Evolution has set a 7p share price – but reckons that a successful conversion of contingent resources to proven or probable reserves would make the shares worth 25p.
This is certainly a share that is on the Red Hot radar screen.
Regards,
Tom Bulford
for The Penny Sleuth
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