Rystad Energy’s UK Shale Update

November 1, 2013

Rystad Energy’s UK Shale Update


Publisher: PESGB Newsletter

Author: Bielenis Villanueva-Triana

Date: November 2013

Shale Gas Resource Potential In The UK

Recent shale assessments have estimated significant shale gas resources in the UK. As shown in Figure 1, Rystad Energy estimates that potential shale resource economically recoverable in the UK could amount up to 24 tcf, with a dry gas content of 80%. This value is obtained based on geological assessments and is subject to adjustments once flowrates from fractured wells are reported. This assessment excludes areas where the prospective formations are found at a depth shallower than 6,000 ft. UK shale resources are found in four formations: Bowland Shale, Liassic Shale and the less prospective Oxford and Kimmeridge Clays.

The most prospective formation is the Bowland Shale in the Pennine Basin, located in Northwest England. In this area, the Carboniferous Mississippian (Lower Namurian) Bowland Shale is found at depths from 3,000 ft to nearly 7,000 ft and it is up to 880 ft thick. This formation is prospective for dry gas and wet gas with thermal maturity (Ro) ranging 1.0-1.5% and a total organic content (TOC) averaging 3.8%. High initial flowrates might be expected in the areas were the formation is overpressured, with a pressure gradient up to 1.25 psi/ft. Conventional production from fields in the Irish Sea are linked to the Bowland Shale as the source rock, which increases the prospectivity of this formation.  

Figure 1: UK Shale potential resources in the most prospective plays, split by hydrocarbon- tcf (Source: Rystad Energy’s UCube).   

Based on geological and geochemical parameters (depth, thickness, %TOC, %Ro) the Bowland Shale is comparable with the Marcellus Shale in the US. However, the sediment thickness is less than 6,500 ft in this area, and the surface area of the prospective horizons is more limited in the Bowland Shale due to the high presence of faults and intrusions in the area.

The variation of geological parameters across the area, prospective for the Bowland Shale, determines zones, which are more prospective than others. Rystad Energy estimates a prospectivity map for the Bowland Shale (Figure 2), which displays low to high prospective areas based on the optimal combination of factors such as formation depth, vitrinite reflectance and sediment thickness. The areas with highest prospectivity - identified with brown color - are in the Bowland Basin (westernmost area in the map), Cleveland Basin (easternmost area in the map) and the East Midlands Shelf (center area in the map).

Figure 2: Prospectivity map for the Bowland Shale (Source: Rystad Energy, British Geologic Survey).

 

UK Shale Spending To Grow Stronger Past 2020

Due to its complex geology and the lack of onshore drilling and completion (D&C) services for shale development, total unit well costs for shale wells in the UK are expected to be significantly higher than in North America. Particularly for the initial wells, total D&C cost per well are expected to be at least twice as much a single shale well in North America, with targets at similar depths. Nonetheless, drilling and coring already started during 2011 in the Pennine Basin targeting the Bowland Shale, which confirmed the presence and thickness of the formation. Unfortunately, in the same year, the first production test well was referenced as the source for small local “earthquakes” due to the hydraulic fracturing process. This event trigged a ban to onshore hydraulic fracturing in the UK, which was lifted early this year and caused a delay in the development of the county shale’s potential. Onshore hydraulic fracturing is currently allowed by the government only under close monitoring.

Currently, companies with interests in licenses prospective for shale are evaluating their strategy to develop such resources. Most active companies include Cuadrilla Resources, Dart Energy (with recently formed JV with GDF Suez) and Maguellan Petroleum, among others. The areas prospective for the Bowland Shale have been largely covered with 2D seismic and some areas in the Cleveland Basin and the Gainsborough Basin have also been covered with 3D seismic, as part of the investments made in shale exploration activity. Bowland Shale cores are also available thanks to vertical wells drilled by Cuadrilla Resources and IGAS Energy. To date, no horizontal shale wells have been drilled in the UK.

From 2014 and forward, shale investments in the UK are expected to increase considerably, with total 2013-2040 shale spending surpassing 60 billion USD (Figure 3). To unlock the potential of the Bowland Shale alone will require nearly 40 billion USD, with most of it expected after 2020 once the execution ability is delivered by the operators. These large investments expected in UK shale include both exploration and development capex and excludes costs of land acquisition. Exploration spending will be dominant until 2020, while the commerciality of the formations is proven.

Figure 3: UK shale E&P spending up to 2040 –USD billion nominal (Source: Rystad Energy’s UCube).   

Figure 3 depicts the ten largest spenders in the UK targeting shale. Cuadrilla Resources is expected to invest the most in UK shale in the next two decades, most of it targeting the Bowland Shale. These values are based on a bottom-up, license-by-license assessment. Passed 2020, spending is expected to grow stronger as improved technology and learning curves yields more developments across the UK.

Rock Quality is Not Everything

Though the UK is a mature oil and gas producing country, most of its oil and gas activity is located offshore (more than 95% of its current production is from offshore fields) and it lacks onshore domestic service capability to develop its shale resources.  Similar challenges are foreseen in other countries outside North America aiming to develop its shale resources. In general, governments and oil companies worldwide face great challenges with regards to exploring shale resources, which translates into extensive time required for planning and adjustments. As one step closer to increasing shale development, the UK government proposed in August this year a shale-specific tax regime, which excluded the petroleum tax from shale developments for an encouraging total tax rate of 30% for shale activity. On the companies’ side, the main challenges will be to allocate their shale-skilled workers towards replicating the North American shale model into UK formations, the latter being far more geologically complex.

In general, UK shale formations seem to meet the minimum geological and geochemical parameters for a successful shale development. However, only results from flowtests will determine their commerciality. In this way, UK shale development before 2020 is expected to be slow and more focus in the understanding of the plays. Once the commerciality is proven, production from shale formations is expected to gradually grow with significant volumes added after 2020.


Article Contacts

Contact: Bielenis Villanueva-Triana, Shale Analyst

Phone: +47 24 00 42 00

Mobile: +47 48 10 87 55

bielenis@rystadenergy.com

 

Contact: Julia Weiss, Marketing Manager

Phone: +47 24 00 42 90

Mobile: +47 48 29 87 61

julia.weiss@rystadenergy.com

 

About Rystad Energy

Rystad Energy is an independent oil and gas consulting services and business intelligence data firm offering global databases, strategy consulting and research products.

 

Rystad Energy is fully owned by the management. It is vital to maintain this independence in operations. We consist of highly qualified and experienced consultants, analysts, technology as well as support people that help enhance and create a complete product and service delivery. Our extensive knowledge on global and local markets is driven by the engagement of our international staff members.

 

Rystad Energy’s products and services are intended for E&P and oilfield service companies, investors, investment banks and governments. We deliver:

• Global databases – online, complete and integrated field-by-field databases covering the E&P and oilfield service industry

• Consulting services – providing support on strategy, transactions, market assessments, macro trends, etc.

• Research products – multi-client reports and tools on selected regional topics, including NASAnalysis products

 

Rystad Energy’s headquarters are located in Oslo, Norway, with additional research teams in India. Further presence has been established in the UK (London), USA (New York & Houston), Russia (Moscow), for Africa as well as South East Asia.

 

About the Author

Bielenis Villanueva-Triana

Bielenis is the lead US onshore activity Analyst at Rystad Energy, with focus on shale asset valuation. She also estimates global shale resources and production forecast. Bielenis is also project manager of NASCube. She holds an M.Sc. in Petroleum Engineering from the University of Oklahoma, USA, which included two years of experience on simulation of reservoir performance.

 

About UCube

UCube is an online, complete, and integrated field-by-field database, including reserves, production profiles, financial figures, ownership, and other key parameters for all oil and gas fields, discoveries, and exploration licenses globally. UCube includes 65,000 oil and gas fields and licenses, portfolios of 3,200 companies, and it covers the time span from 1900 to 2100.