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Shale O&G Projects Outlook 2012: The ‘Fracks’ and figures

Shale O&G Projects Outlook 2012: The ‘Fracks’ and figures

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Published by Gaurav Sharma
IJ report by Gaurav Sharma on shale oil & gas infrastructure finance
IJ report by Gaurav Sharma on shale oil & gas infrastructure finance

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Published by: Gaurav Sharma on Oct 01, 2012
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All content © Copyright 2012 Emap Limited, all rights reserved. 
Shale O&G Projects Outlook 2012: The ‘Fracks’ and
Gaurav Sharma
The shale oil & gas industry has grown immensely in stature over the last half-decade banking mainly but not exclusively on project development and prospectionin the US. Despite the existence of shale oil & gas being known to geologists forbetter parts of five decades if not more, out of practically nowhere
shale gas hasinvaded the industrial, environmental and political discourse not to mentionInfrastructure Jou
rnal’s humble database of energy projects of late.
To say that shale gas has altered the American energy landscape would be theunderstatement of the decade, or to be more specific at least half a decade. Courtesy of the
process of hydraulic „fracking‟, sh
ale gas prospection
most of which was initially achieved inthe US by independent upstart project developers
has been an epic game changer. USshale gas production stood at 4.9 trillion cubic feet (tcf) by end-2011, which is 25 per cent of total US production up from 4 per cent in 2005. Concurrently, net production itself is risingexponentially owing to the shale drive[1].The US Energy Information Administration (EIA) reckons the country has 862 tcf of gasreserves. With such an impressive projected volume, there is now talk of the US, which wasonce a major LNG importer, to become a gas exporter. When such a game changer arrives,others take notice with European project sponsors especially keen to join the game.Furthermore, China is thought to have the largest shale reserves anywhere in the world.
Fact or exaggeration IJ‟s project finance and corporate finance data, which only saw US shale
projects near exclusively bar the occasional Canadian one, has started seeing entries fromChile to Jordan. Market feedback suggests 2012 would see the UK, Ukraine and Poland, thelatter considered by geologists to be the Mecca of EU shale, join their ranks.
All content © Copyright 2012 Emap Limited, all rights reserved. 
IJ Data: We will, we will ‘Frack’ you!
Whether conventional or unconventional, initiatives in the oil & gas sector always bear outequally well in both project finance as well as corporate finance data unlike otherinfrastructure sectors. Shale projects are no exception and follow the oil & gas sector norm.However, in their case corporate finance data has carried a higher weight both in terms of deal valuation as well as the number of projects. Both shale project finance and corporate
finance data recorded their first financial close in IJ‟s current series in 2009 although the
series itself has been running since 2006.On the project finance side, the year 2009 led the way with six projects reaching financialclose while 2010 and 2011 recorded four and three projects respectively. Last year was alsoone of significance when IJ analysts noted two deals outside of North America for the firsttime
namely the Patagonia Non-Conventional Gas Fields project in Chile and a joint 30 percent stake in two Shale projects in Jordan. In terms of deal valuation, while 2009 had moreprojects, 2010 had a higher valuation at US$4.47 billion (versus US$3.84 billion in 2009).Moving away from project finance, it is in the IJ corporate finance data where the shale storyis truly reflected
i.e. one of a steady rise both in terms of deal valuation as well as thenumber of projects. From four corporate infrastructure finance deals valued at US$1.89billion in 2009, both data metrics posted an uptick to seven deals valued at US$8.35 billion in2010 and 10 deals valued at US$7.58
billion in 2011.
© Infrastructure Journal 2012
 Healthy it
might well be, but IJ‟s corporate finance data on shale differs from the project
finance data on one critical front, the latter dataset saw a more diverse mix of countries andregions while the former only contains projects from US and Canada so far. Of these,
Chevron‟s acquisition in 2010, of shale gas developer Atlas Energy, supplying the former with
a key route into the lucrative Marcellus unconventional gas reserve in the Appalachian Basinleads the way.The transaction was valued at US$4.3 billion which includes cash of US$3.2 billion andassumed pro forma net debt of approximately US$1.1 billion. As part of the deal, Chevron willbecome operator of a joint venture with Reliance Industries and will contribute US$1.4 billion
All content © Copyright 2012 Emap Limited, all rights reserved. 
to the drilling costs for that project. Atlas' average daily natural gas production is 118 millioncubic feet (mcf) equivalent.The 2011 acquisition deal of privately held exploration firm Phillips Resources and its affiliateTWP, by ExxonMobil, valued at US$1.7 billion is next in line in the list of top transactions. Themove will see ExxonMobil almost double its acreage of the Marcellus Shale reserves inPennsylvania, USA to just over 700,000 net acres.
The transaction came in wake of the US oil major‟s mammoth takeover of Texas
-based XTO
Energy, then the US‟s largest independent natural gas producer, in December 2009. XTO will
take charge of the Phillips asset which currently produces 50 mcf of natural gas per day. Ithas been claimed that the Marcellus field may contain up to 500 tcf of gas.
Other key transactions on IJ‟s database include the Statoil Eagle Ford Asset Acquisition
(valued at US$ 1.51 billion), BG Group acquisition in Haynesville Shale (US$1.31 billion) andasset acquisition in Niobrara Shale and Powder River Basin (US$1.27 billion) completing thelist of top five corporate finance transactions between 2006 and 2011
all of which wereAmerican. (
For a more detailed list, see table above
Fracking there, fracking here: All hail shale?
In the summer of 2005, American think-tanks and market analysts were increasinglydebating how US dependence on Venezuela would rise in order to meet the domesticdemand. There was even some talk of easing-up on Iran. However, by 2007 all of this hadbeen kicked into the long grass with
talk of the US as a „gas exporter‟ becoming all the rage
and with some conviction.As noted, shale presently provides 25 per cent of US gas production and is projected to riseto 46 per cent by 2035 according to the EIA. This entirely narrows down to the technique of 
hydraulic „fracking‟ wherein high pressure fluids blast the shale rock formation. This
subsequently releases the gasoil or gas trapped inside which is then pumped to the surface.
The fluid or „fracking mix‟ not only contains water, but a mix of 
sand and chemicals.The technique has been around for 20 years and but it has taken almost the last 10 years toimprove it in order to make it viable and there is room for more improvements. MarkSadeghian, Senior Director (Energy), at Fitch Ratings notes that the application of newerdrilling technique to crack open North American shale has been a critical driver of theimproved economics of liquids shale plays and wet gas drilling.

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