Toreador Resources Corp. Chief Executive Officer Craig McKenzie’s optimism about oil from the shale rock around Paris -- some even under the Eiffel Tower -- boosted the company’s shares to a record in January.
Six months on, France is set to become the first country in the world to outlaw the drilling technique that’s vital to Toreador’s success. The company has tumbled as much as 79 percent from its high to $3.77 in Nasdaq Stock Market trading, wiping out $374 million in market value.
Toreador sold its assets in Turkey, Hungary and Romania, moved its headquarters to Paris from Dallas in 2009, accumulated the most acreage of any explorer around the French capital and readied with partner Hess Corp. to start drilling. With a proposed French law banning oil-exploration technology called fracking, Toreador won’t be able to complete its projects.
“It doesn’t look good for Toreador,” said Joel Musante, an analyst at C.K. Cooper & Company. “There is no alternative to fracking to get oil out of shale. At this point it looks like the only thing they could do is participate in a study and that could go on for years.”
McKenzie declined to comment on what Toreador’s strategy will be for the Paris Basin once the ban becomes law.
Fracking, a technology used widely in the U.S., is being rejected in France because of a “huge popular outcry,” according to a parliamentary study released last week. The report relied on findings in the U.S. of land and water contamination and risks of earthquakes rather than on any evidence in France. Fracking uses water, sand and chemicals to break dense rock to release oil and gas trapped within.
A parliamentary committee yesterday agreed on a ban that removed the possibility of fracking even for “scientific experiments.” Both houses of the French parliament are slated to vote on the bill this month and it could become law in July.
Companies that were planning to use the technique will have their permits canceled under the proposal, which also includes jail time and fines for fracking and the creation of a commission to oversee research and evaluation of unconventional oil and gas exploration.
“There may be other ways to do this type of exploration without hydraulic fracking,” French Senator Michel Houel said in an interview yesterday. “I know we will have to reexamine this law one day. I understand the legitimate worries of the French people, but I also think they weren’t sufficiently informed from the start.”
Toreador had said the Paris Basin could contain 100 billion barrels of oil and has comparable geology with the Bakken Shale in North Dakota, where explorers have used hydraulic fracturing to release oil from underground rock and nearly quadruple production over the past decade.
The French government awarded permits, most of them last year, for unconventional oil and natural gas exploration. More than half a dozen companies won permits including Toreador and Vermilion Energy Inc. in the Paris Basin and Schuepbach Energy LLC and Total SA in southern France. GDF Suez SA was in talks with Schuepbach on taking stakes in two permits.
“France apparently has one of the best potentials for shale gas along with Poland,” in Europe, Total Head of Strategy Jean-Jacques Mosconi said in Paris yesterday. “The technique requires a lot of savoir faire” that Total didn’t have until it entered into a partnership with Chesapeake Energy Corp. in the Barnett Shale field in Texas last year, he said.
Vermilion, based in Calgary, used hydraulic fracturing in two existing vertical wells in the Paris Basin. Both produce “nominal amounts of oil from the shale,” according to the company. Vermilion, which holds 176,000 acres of permits in the basin, has now delayed plans for further drilling through the rock, it said in March.
Under pressure from lawmakers within the ruling party who were facing local elections in March, the French government first imposed a moratorium and then came out in favor of a ban. President Nicolas Sarkozy faces national elections in 2012.
“I’m against hydraulic fracturing,” French Environment Minister Nathalie Kosciusko-Morizet has said. “We have seen the results in the U.S.,”, with its “devastated countryside” and “sullied water tables.”
Toreador billed itself as the “most aggressive” explorer going after unconventional oil in the Paris Basin by bidding for the most permits and spending the most money readying for a drilling campaign. New-York-based Hess had planned to spend as much as $120 million on searching and producing shale oil with Toreador, which spent $2 million last year on exploration.
“Is there oil under the Eiffel Tower? The answer is yes,” a beaming McKenzie said at a Dec. 15 presentation to investors near the Champs-Elysees. “If this was West Texas we would probably have hundreds of fields on tap.”
West Texas it is not. Toreador, which has 35 full-time employees, and partner Hess may be left holding about 700,000 acres of permits granted since last year. Under their partnership reached in May, 2010, six exploration wells were to have been drilled in a first phase over 30 months. Toreador and Hess have since extended the deadline by 18 months.
“We’ll consider all our options,” McKenzie said on a conference call last month. “We’ll continue to work with Hess in assessing the resource potential of the Paris Basin. We remain rig ready.”
The company is pumping just 880 barrels a day from two conventional oil wells. That compares with about 11,000 barrels a day for all of the Paris Basin last year and Total’s 2.37 million barrels of oil equivalent a day worldwide in the first quarter.
French UMP lawmaker Isabelle Vasseur said she was stunned last February when she found out that Toreador had permits and was on the verge of drilling for shale oil in her district around Chateau-Thierry, east of Paris.
“I felt like my back was up against a wall,” said Vasseur, who at the time was heading into local elections.
Vasseur is backing the ban on hydraulic fracturing as well as an overhaul of France’s mining code that allowed permits to be handed out for unconventional energy exploration without studying hydraulic fracturing and its consequences.
“France could have phenomenal energy reserves so we must not close the door forever,” she said. “The way the permits were given out was unacceptable. The public wasn’t properly informed. Now, there is a need for less hysteria on the issue.”
If a large reserve were discovered in the Paris Basin “the French maybe would reconsider the ban,” said the analyst Musante, who has a ‘hold’ call on Toreador shares. “That’s a very big if, though.”