One in Five Global Shale Basins May Succeed, Wood Mackenzie Says

Only one in five global shale regions may succeed in producing significant amounts of oil and gas as countries from China to Argentina seek to emulate the U.S. boom, said energy consultants Wood Mackenzie Ltd.

Argentina is leading the pack, with plans to drill about 200 shale wells this year, more than three times the number in China, Andrew Latham, Wood Mackenzie’s vice president for exploration research, said in an interview in Perth, Western Australia, where he’s attending an industry conference.

“You hear people talk about lots of different basins,” Latham said yesterday. “It’s all good, but it’s all potential, and I’d be surprised if more than one in five plays that gets drilled ever becomes commercially significant in terms of production. You only get to be one of the five by drilling.”

Shale explorers are targeting China, Russia, Australia, India, South Africa and Argentina in pursuit of deposits similar to those that have revolutionized energy supply in the U.S. Argentina will drill half the shale wells in the world outside the U.S. this year, Wood Mackenzie estimates.

The drilling of “400 wells globally is actually a very small number compared to the several thousand that are getting drilled every year in North America,” he said.

Global spending on oil and gas exploration is forecast to stall at about $100 billion annually over the next three years, increasing the risk for the largest producers, he said.

“When explorers become too timid they end up drilling small, low-risk prospects they can develop quickly, but ultimately that’s a hard way to outperform,” he said. “So the industry retreats to lower-impact exploration at its peril.”

Oil companies from Royal Dutch Shell Plc (RDSA) to BP Plc (BP/) have cut spending to help bolster finances as costs outpace energy prices. Wood Mackenzie’s forecast is based on expectations the oil price won’t change significantly and that some producers will reduce spending on developing shale acreage, Latham said.

To contact the reporter on this story: James Paton in Sydney at jpaton4@bloomberg.net

To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net Keith Gosman, Andrew Hobbs

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