Oct. 8 (Bloomberg) -- Pierre Henry farms wheat and corn east of Paris in an area famous for its Brie cheese. The next big hit might be crude oil.
Henry’s farm, 78 kilometers (49 miles) from the French capital, sits atop what geologists call the Paris Basin, an area bordering Champagne and Chablis vineyards that struck oil in 1958. Henry leased a field to Exxon Mobil Corp. in 1985, which drilled wells that have pumped for a quarter century.
These days Vermilion Energy Inc., Toreador Resources Corp. and partner Hess Corp. are targeting a bigger prize, oil trapped in Paris Basin shale rock that was previously too hard to tap. Techniques developed to pulverize rock and release petroleum have revolutionized exploration and boosted U.S. natural gas production 20 percent since 2006. Vermilion said it has had “positive” results so far in the area.
“If the Paris Basin was in West Texas it would already be drilled and would have pretty substantial production,” Craig McKenzie, Toreador’s chief executive officer, said in a telephone interview in August.
Geology of the basin, a saucer-shaped rock formation extending over 140,000 square kilometers (34 million acres), is similar to the Bakken Shale in North America. While the Paris Basin may hold 100 billion barrels, it’s unclear how much is recoverable, according to the French Energy Ministry.
Last year, conventional oil output from wells around Paris declined to about 10,000 barrels a day, a quarter of the peak in 1988. Shale oil production around Paris may rise to about 50,000 barrels a day by 2020, according to Bernstein Research.
New York-based Hess in May agreed to invest $120 million to help Toreador, based in Paris, search 800,000 hectares (1.97 million acres). Toreador plans a well this year about 50 kilometers away from Henry’s farm near the Napoleonic battle site of Chateau Thierry. Vermilion has over 176,000 acres and plans further tests in the region.
Toreador shares have risen 52 percent in New York trading since the agreement with Hess was announced on May 10, while Calgary-based Vermilion is up 23 percent in New York. The Morgan Stanley World/Energy index has dropped 3.1 percent.
Vermillion’s well is “clearly encouraging” for Toreador, Thomas Martin, analyst at Stifel Nicolaus who has an “overweight” rating on Toreador, wrote in a June report. The potential of shale oil production would provide “significant upside” for Toreador shares, he said. Martin declined to comment for this story.
While smaller oil companies anticipate output, Total SA, France’s largest oil company, looked at the area and declined to participate.
“It didn’t appear to have geologically interesting characteristics,” Patrick Pouyanne, a senior vice president, said in an interview this month. “It may turn out that we were wrong,” he said.
Total has shale gas permits in southern France, Argentina and Denmark and is looking at possibilities in eastern European countries, he said.
The area has stirred excitement before, including in the 1980s when finds by Total and Exxon spurred a rush that even triggered seismic surveys in 1986 on the Champs-Elysees in Paris. That boom petered out after a series of dry wells and a drop in oil prices.
The basin is an “emerging unconventional hotspot,” Oswald Clint, senior analyst at Bernstein Research, said in a Sept. 27 report that forecast the potential quintupling in production in a decade.
Toreador estimates its permits may hold as much as 90 million barrels of recoverable oil.
“The source rock is world class,” David Burghardt, director of European exploration at Vermilion, said by phone from his office in Parentis-en-Born in southwestern France. “The challenge is how to extract it and how extensive it is.”
Shale drilling may prove controversial in France’s agricultural belt because the technique blasts water and chemicals into a well to break the rock underground.
The technique has met opposition in the gas-rich Marcellus Shale running from New York to West Virginia. Since 2008, 1,785 wells have been drilled in Pennsylvania’s portion, while New York regulators have placed a moratorium because of the potential pollution of groundwater.
The shale oil around Paris may be located in a layer between two rock formations that contain conventional oil. That layer is more than two kilometers underground at the Champotran field, where Henry’s patch is located, and more than one kilometer from a freshwater aquifer, according to the minerals agency.
“We don’t have an answer as yet as to whether the fluids used to extract the oil will prove too expensive or harm the environment,” said Christophe Rigollet, deputy head of geology division at the government agency Bureau de Recherches Geologiques et Minieres.
Oil exploration permits in France rose 50 percent by surface area last year, and permit bids rose to 24 from 18, with 14 in the Paris Basin, according to the Energy Ministry’s annual report in June. The ministry has opened for more permits, including the Sezanne area near Champotran, where Toreador and Vermilion are competing with six other companies, according to the ministry.
“There’s a genuine rush,” said Rigollet at the ministry. “About 30 companies have asked us for geological data on shale oil in this region.”
Back on the ground, the looming boom has mostly gone unnoticed. Patrice Caffin, 56, mayor of Jouy-le-Chatel, a village that gets taxes from Champotran wells, said while he wasn’t aware of the shale drilling he didn’t foresee much local opposition.
“More oil would be a good thing,” said Caffin in an interview. “We aren’t spitting on the money, that’s for sure.”
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