Some shale formations in Europe and China are impervious to drilling techniques that opened vast reserves of natural gas and oil from Texas to Pennsylvania, said Rex Tillerson, Exxon Mobil Corp. (XOM)’s chief executive officer.
New methods and tools will need to be invented to tap many of the shale fields that energy companies and governments expect eventually to yield a bonanza of fuel, Tillerson said during a meeting with analysts in New York today.
Exxon, the largest U.S. gas producer after its 2010 acquisition of shale driller XTO Energy (XTO), failed in its first two efforts to crack gas-rich shale fields in Poland. Gas discovered in a pair of wells finished during the final three months of last year didn’t flow, even after the company used high-pressure jets of water and sand to create fissures in the rocks.
“Some of the shales don’t respond as well to hydraulic fracturing,” Tillerson said during a meeting with reporters after his presentation to analysts. “It’s going to take research and time in the lab to understand that.”
Some parts of U.S. shale formations also have proven impervious to hydraulic fracturing, or fracking, he said. The company is studying whether using different fluids, proppants or pumping techniques will be successful, Tillerson said. Proppants are tiny granules of sand or ceramic used to hold open fissures that allow oil and gas to flow through rock.
“Parts of some of these well-known shale plays everyone’s all excited about don’t work,” Tillerson said. The geologic obstacles may stem from the depositional history of the formations and factors such as high temperatures deep under ground, he said.
Yet-to-be developed fields in shale rock and under deep seas are expected to contribute 1 million barrels a day of new oil production by 2025, Yves-Louis Darricarrere, president of exploration and production for Paris-based Total SA (FP), said on March 6 at the CERAWeek conference in Houston.
Exxon’s U.S. shale holdings include 400,000 acres in the Bakken region of North Dakota and Montana, 800,000 acres in the Permian Basin in west Texas and New Mexico, and 170,000 acres in the Oklahoma’s Woodford Shale, Tillerson said.
Despite the Polish setback, Tillerson said shale and other so-called unconventional geologic formations will become a “cash cow” for Exxon.
Exxon agreed last year to explore shale fields in China with China Petrochemical Corp. (1314) The company also has shale projects under way in Argentina’s Vaca Muerta formation.
Tillerson is spending $37 billion this year to find and produce oil, gas, chemicals and motor fuels. Spending on capital projects will continue at that pace through 2016, he said today.
Oil and gas production will fall 3 percent this year because of surging oil prices that will curb the company’s share of output from wells in some nations. The production forecast is based on a $111 a barrel average price for Brent crude.
The output decline stems from contracts in countries such as Nigeria that reduce the company’s share of production as crude prices escalate.
Tillerson plans 21 major oil and gas projects that will begin production between 2012 and 2014. This year and next, the company expects to start up nine major projects and anticipates adding the equivalent of more than 1 million net barrels a day by 2016.
“An unprecedented level of investment will be needed to develop new energy technologies to expand supply of traditional fuels and advance new energy sources,” Tillerson said in remarks prepared for today’s meeting.
The company’s 2012 exploration portfolio includes projects in Tanzania, Guyana and Ireland, according to the presentation materials.
Exxon fell 1.2 percent to $84.83 at the close in New York. The shares are little changed in the past year.
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