The advent of new fracking technology has brought previously ignored and non-producible oil source rocks back to the forefront of petroleum exploration. The high pressure hydraulic rock fracturing technology has allow present day oil drillers to fracture and condition the oil source shale rock in order to recover a portion of the oil-in-place. The shale oil stories such as the North Dakota Bakken or the Texas Eagle Ford are now common place for the petroleum environment. There is another shale oil story that has yet to hit the news flow and so you may not be aware of it. It may be an extension of the Utica shales but situated much more northern in Newfoundland Canada.
Shale Oil Basics
Shales with oil are considered the source rocks for conventional oil deposits that are trapped within a seal rock's anti-cline or hump in the earth's geology. The source rock was originally a settlement layer underwater on the Earth's surface where eons of organic matter becomes trapped in the sediments. With geologic events, the rock is overlain with other rocks and becomes embedded deeper in the Earth's crust. The source rock then has passes through a time frame of the Earth's geothermal furnace where the high heat and pressure at depths transforms the organic matter into gas, oil or coal in a successive cooking process of maturation.
One clue to the shale oil prospectivity would be the "Total Organic Content" (TOC) of the shale. Another clue is the type of kerogen that the organic matter constitutes and the Vitrinite Reflectance value that indicates whether oil is present or not. A third measure of the prospect is the porosity of the rock or its ability to hold oil within its pores. Finally, there is the permeability of the rock as to whether the oil can be transported from place to place within faults and fractures. This is where the drillers assist the shale layer in releasing their crude oil by hydraulically stimulating multiple fractures along the drilling path.
Location, Location and Location
This shale oil prospect is the Green Point Shale (GPS) that is in the Port au Port Bay area on the west coast of Newfoundland, the island just off Labrador on Canada's mainland. Here is a link to a good map about Oil and Gas activities around Newfoundland. The specific drilling presently is on well 3K-39, in the map following:
Source: Shoal Point Energy website.
As in real estate, the three most important factors to consider for a resource company are the three location factors. Firstly is the location in a safe jurisdiction, not prone to government seizure? Yes, this property is in democratic Canada on the Atlantic seaboard, about one thousand miles north-east of New York. Secondly, is this property in an environmentally supportive governing jurisdiction? Yes, this exploration property is in oil and environmentally friendly Newfoundland, where there is an oil drilling history and a refinery at Come-by-Chance, Newfoundland. Thirdly, is there the infrastructure to bring in supplies and to take the products to markets? Yes, there are roads and power and ports such as Corner Brook and Stephenville, within the vicinity.
Newfoundland Oil Drilling History
Off the east coast of Newfoundland, there has a long history of oil development including the Hibernia, Terra Nova and White Rose fields discovered 200 mile offshore in the 400 feet deep Jeanne d'arc Basin in the Grand Banks area in 1970s and 80s. These projects are now owned by a consortium of big oil partners including Suncor Energy (SU), Exxon Mobil (XOM), Statoil (STO), Husky Energy (OTCQB:HUSKF) , Murphy Oil (MUR) and Chevron (CVX). These fields are producing 300,000 barrels of light crude per day.
On the west coast of Newfoundland there has been minor oil exploration and production since the late 1800s. Offshore, is the Anticosti Basin, which was explored with seismic in the 1990s by Hunt, PanCanadian, Talisman (TLM), BHP and Exxon Mobil (XOM) . Onshore in 1994, Hunt Oil drilled the Port au Port #1 well and hit 51 API oil flowing in two intervals flowing at 1528 and 1742 bopd over nine days, but this diminished with time. The hypothesis was that this was a porous zone within a larger trend.
Currently Shoal Point Energy is extending the 3K-39 well and is about to perform open hole tests on the extension.
Billion Barrels of Oil-In-Place
The fascinating geology of the Green Point Shale is that it is considered an "Allochthon", that is the landform has been moved here by geologic events, they were not formed in-situ. The hypothesis is that the geologic forces that moved the shale layer here also crumpled up the shales in a folding thickening pattern similar to an accordion. The layers are "tectonically thickened by imbrication (stacking)", so that the shale layer that should be only tens of metres thick naturally ends up being a few hundred meters thick.
The Newfoundland government documents offering the oil exploration licenses for bids says this about the specific area:
Port au Port #1 oil and gas tests and the presence of oil in seeps and drilled wells demonstrate that source rocks are mature and that oil and gas was generated and migrated into traps. After trap formation there were direct migration routes through porous beds or faults from the Green Point shale into allochthonous reservoirs.
With source rocks in the oil window or dry gas window, trap preservation and presence of adequate reservoir remains the main risk factors in the Paleozoic basins.
This tells me that the shale rocks are oil bearing and the risk is how to find the reservoir. Even if conventional oil pools are not located, these thick shale beds can be now produced with modern fracking technology.
With the crumpled and thick layers of shale, this gives cause to the lucrative aspects of this story. The thicken layer implies an increase in the amount of oil source rocks available for extraction. The geologic forces may have also assisted in the stressing of the shales to make them permeable with large faults and micro-fracturing. The testing performed by NuTech of Texas on the geology gives some very interesting results as shown following:
Source: Shoal Point Energy website.
The GPS shale oil layers are uncommonly thick and thus gives a multiple to the amount of possible oil-in-place. Note the number for Long Point well M16 gives 930 MMBO per section, almost a billion barrels of oil-in-place.
Recent Alliance Events
The drilling for 3K-39 is operated by Shoal Point Energy (OTCQX:SHPNF) of Toronto. On October 26, 2011, SPE announced an agreement to acquire 100% of EL 1070 from Canadian Imperial Venture (GM:CIMVF) and also increased their interest in EL 1120 to 80% from Ptarmigan Energy. This agreement acquires the whole of EL 1070 and acquires further interest in EL 1120 which abuts.
On January 17th, SPE announced an agreement with NWest Energy (GM:NWNYF) to acquire Exploration License (EL) 1079R which is contiguous to EL 1120 and the EL 1070 where the 3K-39 well is. This agreement acquires EL 1079R which increases the holdings three times to basically the whole of the GPS area in Newfoundland. It seems SPE is positioning for a successful well test of 3K-39.
The Catalyst for Discovery
The drilling of 3K-39 is for the appraisal purposes of the GPS. The latest update from SPE on February 22, 2012 was:
Shoal Point is pleased to announce that operations at the DLMC Shoal Point 3K-39z well are continuing, and that the side-tracked well is expected to reach a measured depth of approximately 1,800 metres over the next few days, after which the borehole will be logged, and a open hole test will be run over the entire approximately 190 metre open hole section below the whipstock. Thereafter, the hole will be drilled to final total depth.
As announced previously, the current work will also involve up to four tests out of the casing in the existing 3K-39 borehole, subject to final regulatory approvals of the testing program. All tests will occur within the Green Point Formation, and will test the flow potential and reservoir characteristics of unstimulated, fractured Green Point shales. The balance of the program is expected to take up to 45 days to complete.
SPE states that this GPS prospect has the potential for both conventional oil (due to the fractured formation) as well as unconventional shale oil. This well will test for the flow potential in addition to the prospectivity and the potential resource size for the total Green Point Shales. The numbers for the oil-in-place is estimated to be very large.
Shoal Point Energy's US symbol is SHPNF and may be traded here. The author holds Shoal Point Energy shares.
Feb 14, 2012
Jan 26, 2012
Dec 14, 2011
Equities mentioned - XOM, CVS, SU, TLM, STO, HUKSF, MUR, SPHNF, NWNYF, CIMVF
Disclaimer: The information and opinions contained within this document reflect the personal views of the author and should be viewed as food for thought and amusement only. The author may from time to time have a position in any of the securities mentioned. There are no guarantees of the accuracy, reliability or completeness of the information contained herein. Independent due diligence and discussions with one's own investment and business advisor is strongly recommended. These writings are not to be construed as an offer or solicitation with respect to the purchase or sale of any security or as an endorsement of any product or service. We do not request or receive compensation in any form in order to feature companies in this publication. It is prohibited to copy or redistribute this document to any type of third party without the express permission of the author. This document may be quoted, in context, provided proper credit is given.
Additional disclosure: The author holds Shoal Point Energy shares.