HOUSTON -- With record-low U.S. natural gas prices worrying oil and gas companies that have invested heavily in breakthrough shale plays, the industry is sending drilling to tight oil prospects and resources rich in natural gas liquids -- better investments as crude prices linger near $100 per barrel.
And with competition already fierce in North Dakota's Bakken field and south Texas' Eagle Ford, companies are turning toward lesser-known oil-rich formations in what could be the next chapter in the North American shale story.
The industry is already alight with talk of the Utica Shale in Ohio and the Niobrara Shale in Colorado, where companies are scrambling to secure mineral rights. While no one is yet certain how much crude can be extracted in those emerging shale oil plays, most agree that it is substantial. Anadarko Petroleum Corp., for instance, recently announced that up to 1 billion barrels of crude could be extracted in areas it controls in the Niobrara.
New shale formations are now quickly entering the picture: the Tuscaloosa Marine Shale in Louisiana and Mississippi and the Monterey Shale in California. And there also are new prospects in Texas, including the Woodbine/Eaglebine zones and Hogshooter Wash, a section of the Granite Wash field where one exploratory horizontal well by Forest Oil Corp. reportedly produced 2,800 barrels of crude in its first 24 hours.
The Tuscaloosa Marine Shale, otherwise known as the Louisiana Eagle Ford, could rise quickly in prominence given its proximity to the heart of the U.S. oil and gas industry.
"It's still early. There are a few players out in the western side testing it," said Kirk Barrell, president of Amelia Resources, a firm based in The Woodlands, Texas, that is actively exploring the Tuscaloosa Marine. "We believe the eastern side is going to be the place to be, and that's where we've put our investment."
Many of the formations now being targeted -- Tuscaloosa, the Woodbine/Eaglebine north of Houston, the Cana Woodford Shale in Oklahoma -- long have been known to hold crude oil. But the oil they hold was not economically accessible until after the refinement of the same technologies and techniques that helped North Dakota become the nation's fourth-largest oil-producing state in just a few years.
Some of the new geological zones being explored are not technically shales but rather deep sandstone formations, holding oil trapped in rocks that may be easier to break apart with less effort or cost.
Geologists have been looking at the Tuscaloosa Marine Shale since at least the 1970s, according to Chacko John, a researcher at Louisiana State University.
"A lot of the information which started out originated from our paper, which was done a long time ago," John said.
That paper, a 22-page overview of what geologists understood of the Tuscaloosa at the time, puts the reserve potential of that unconventional oil field at approximately 7 billion barrels. The formation covers almost all of central Louisiana and stretches into Mississippi, but only a few companies are active there, including small, independent companies such as Amelia Resources LLC and Indigo Minerals LLC.
Larger companies also are joining in. Devon Energy Corp. reportedly acquired exploration rights covering approximately 250,000 acres above the Tuscaloosa Marine Shale in the past year. Denbury Resources Inc. and Encana Corp. also are taking an interest in this shale resource.
'California's sleeping giant'
California's Monterey Shale, underlying that state's existing inland oil patch, is also attracting interest.
The very thick, relatively shallow liquids-rich resource is "technically bigger than the Bakken," said Mike Edwards, vice president of Venoco Inc., a Denver oil and gas independent with operations in California.
But although production potential is high and the industry understands the geology of the Monterey Shale relatively well, future drilling activity in California's major shale field will likely be much different from what has happened in the Bakken or what is coming to Louisiana's Tuscaloosa Marine Shale, Edwards said.
"California is kind of a unique place because the majors have a dominant land position," he said. "They had a lot of acreage tied up, so you don't have a lot of independent oil and gas companies like you have in other parts of the country."
Edwards cited Occidental Petroleum Corp. and Chevron Corp. as two of the biggest players controlling a large swath of exploration rights in central California overlying the Monterey field. They have little incentive to give up those leases, even though they are not very actively drilling that shale field today, leaving little room for the independents to open up the state to more activity, he said.
But the picture could be changing in California. At an industry conference in Denver last week, the Monterey Shale was singled out as an emerging resource of particular interest. Venoco dubs it "California's sleeping giant."
"The majors didn't have an incentive to drill deeper and go exploring for Monterey, so a lot of it was bypassed, and it's sitting there," Edwards explained. "They are finally starting to look outside their boundaries a little bit."
Still more prospects
Currently, there are around 1,200 drilling rigs chasing after tight-oil opportunities in the United States, more than are drilling for shale gas. The number of rigs committed to domestic onshore oil exploration is the highest it's been in 25 years, ConocoPhillips CEO Jim Mulva said during a presentation at an energy forum here this week.
Mulva cited the Tuscaloosa Marine, Monterey, Utica and Niobrara as the next big fields.
"Look for all of these to become even more familiar names going forward," Mulva said.
Though he acknowledged that the industry doesn't yet have a handle on how much crude can be extracted from these tight formations, he and other industry executives believe the volumes to be substantial given some of the early results that peer companies are reporting. By some estimates, U.S. shale or tight oil production could climb to 3 million barrels per day by 2025 from just the better-known fields.
A map of shale formations in the lower 48 states updated last year by the federal Energy Information Administration shows other "prospective" zones in the Southeast aside from Tuscaloosa Marine. They include Floyd-Neal in northern Mississippi and Alabama and sections of the Chattanooga formation scattered in parts of Alabama and northeastern Tennessee.
"At this early stage, it's certainly very exciting," Mulva said.
Shale oil exploration and production are now perking up in Montana's share of the Bakken field, and growth in production there could draw companies to the Heath and Cody prospects lying farther west.
Exploration and production companies are also keeping a close eye on new, promising shale gas fields in the hopes that natural gas prices will creep back up and make those resources economical. Northern Wyoming could be the next region to emerge, as natural gas producers see potential in the Mowry and Baxter shale formations there.
But growth there has been for the most part halted as domestic gas prices dropped, said Rod DeBruin of the Wyoming State Geological Survey.
Horizontal drilling for oil is under way in Wyoming's Powder River Basin. But shale gas exploration activity has mostly gone by the wayside as rigs have been relocated to prospect for oil instead, DeBruin said.
In the Mowry Shale, "there's been a little bit of activity, and actually we did a report on that a few years back, just kind of showing that it has potential," he said. "Now natural gas drilling has pretty much come to a standstill. Most of the rigs are up in North Dakota and a little bit in Montana in the Bakken play."
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