In physical extent the Utica shale covers a geography about twice as extensive as the Marcellus (and far more extensive than the Barnett). In terms of hydrocarbon resources no one knows the potential of the play. It is too early in its E&P lifecycle (recall that the first modern well was drilled in the Marcellus by Range Resources only in 2004). Only a few commercial wells have drilled by less than half a dozen companies but even so expectations have risen dramatically.

The Utica lies between 3,000 and 7,000 thousand feet beneath the Marcellus but extends further northwest and much further southwest. It underlies parts of New York, Pennsylvania, Maryland, Virginia, West Virginia, Ohio, Tennessee, Kentucky, Lake Erie, Lake Ontario, Ontario and Quebec. Its depth ranges from about 2 miles deep in parts of Pennsylvania to under 2,000 feet below sea level in parts of Ohio, the Great Lakes and Ontario. It is reportedly even shallower in Quebec.

It is this very large footprint that is persuading E&P companies, especially Canadian companies, to postulate that the Utica shale may be a very large resource play even if recovery with current technology is only in the 2 to 3 % range. Each generation of technology increases recovery rates and the industry is confident that recovery rates will keep rising over the next few decades.

The Utica has a much higher carbonate and lower mineral clay content than the Marcellus. Thus the production techniques that suit the Marcellus may not suit the Utica; however, the experience gained from the high carbonate Eagle Ford may be directly relevant. The Utica is of considerably varying thickness, from over 500 feet in the East to less than 100 feet in the West. Depth does equate to resource potential. The liquids window of the Utica is thought to be in the West and it is this liquids window that is likely to attract industry attention and risk capital much more than the dry gas in the East.

 Where the Utica lies beneath the Marcellus, the disadvantage of greater drilling depth is partly or wholly mitigated by the opportunity to benefit from existing drilling pads, roads, permits, filings, landowner agreements, gathering and processing systems , pipelines and the  local presence operating experience of field service companies and drilling crews.

Much of the leasing activity in 2011 for the Utica has been, as might be expected, in Ontario and Quebec where the resource is quite accessible. However, the first commercial drilling is said to be in Pennsylvania (Butler County).  Range Resources drilled what it believes to be the pioneering commercial well in 2010 and plans more drilling in 2011. Consol Energy drilled a discovery well in the Utica and will shift exploration resources to this play in 2011. Shell and Chevron (via the acquisitions of East Energy and Atlas Energy respectively) are well positioned to be significant in the Utica.  Chesapeake Energy supposedly is building a land position in this play, most likely in Ohio. Private equity and MLP investors have also been briefed on the nascent Utica play and the response is said to be encouraging.

In Canada a Utica pioneer is Gastem, based in Quebec. It drilled two exploratory well in Quebec explicitly to test the Utica in 2006 and is convinced the play is real. Another Canadian company, Epsilon Energy, has formed a joint venture with Gastem to pursue the Utica in the St. Lawrence Lowlands. Forest Oil (Canada) has drilled two successful Utica test wells in the Gaspe Peninsula. A recent discovery by Questerre Energy in the St Lawrence Lowlands is considered to be strategically significant by companies active in that area. Questerre has been studying the Utica shale in Quebec for about two decades.

It is worth recalling that the Marcellus excitement began just a few years ago with a small pioneering company. The resource potential was initially viewed as quite limited and neither the majors nor government agencies thought there was much commercial significance.  Today the Marcellus is estimated to have a technically recoverable resource of over 250 trillion cubic feet (about a mid teens ultimate recovery rate).  In a mere 6 years the play went from novelty to world class. It is this trajectory and record of success that inspires the half dozen or so companies that are now seriously investigating the Utica. If there is validation then one would expect the number of companies committing money, technology and management time to the Utica to jump to over two dozen by end 2011.

The Argentine company YPF( now owned by the large Spanish company, Respol) announced a 4,500 billion cubic feet(Bcf)  shale gas  discovery in Loma de La Lata  conventional gas field  in the well known and productive Neuquen Basin in Patagonia. The Vaca Muerta and Los Molles shales are the principal source rocks in this basin. YPF guesses that the shale gas resource base in the Neuquen is over 250 trillion cubic feet (Tcf). Argentina’s annual gas consumption is 1.5 tcf and its proven, documented, reserves are about 15tcf so the discovery is far more significant for Argentina than the Barnett was for the US.

YPF has entered into a $140 million joint venture with the Brazilian iron ore and mining multinational, Vale, which will use the gas to develop a $4.3 billion dollar potassium project in nearby Mendoza. Shale gas exploration has only now become attractive in Argentina with the revision of that country’s gas pricing structure. The Neuquen Basin already has a gas transportation and field services infrastructure in place.

A small Canadian independent, American Petrogas Inc (API) is also enthusiastic about shale gas development in the Neuquen. The company has 16 exploration blocks, both for conventional and shale gas, in the eastern and western parts of the basin and thinks its western blocks have the greatest potential for shale gas. API believes that there is shale gas in 9 of its blocks and the resource potential of these blocks is 100 tcf. A strategic investor in API  is the large fertilizer company called Indian Farmers Fertilizer Cooperative (IFFCO), which  has a strategic alliance with API to explore for natural gas. IFFCO suggests that Indian companies should become involved in Argentina’s shale exploration.  API has invited two government owned Indian companies to invest in its shale prospects. These companies are Oil India and GAIL.

Apache Corporation is encouraged by the new pricing policy in Argentina which provides incentives to develop new supply. Apache expects to have 900,000 net acres in the shale gas prone part of the Neuquen. The company has a partnership with YPF to develop shale gas in several prospective blocks. It is currently drilling the first horizontal multi fracture well in Latin America specifically to develop shale gas.

Total SA, the third largest integrated oil company domiciled in Europe, has acquired an interest in 4 shale gas blocks in the Neuquen and will explore in partnership with YPF. This follows the acquisition of an 85% interest in 2 other Neuquen shale gas blocks recently.  Total operates about a quarter of Argentina’s natural gas production. It aspires to a significant portfolio of shale gas and oil assets worldwide, to which it can profitably apply what it has learned from its 25% interest in Chesapeake Energy Corporation’s holdings in  the Barnett shale (where the shale gas industry originated not very long ago). Total is already present in the Bakken like formation in the Paris Basin in Northern France and plans to develop shale assets in Denmark, Canada, Australia, Algeria and China.

ExxonMobil may also become an important participant in Argentina’s shale gas industry. In addition to its very large business position in “unconventional” oil and gas resources in North America, the company is also investing or plans to invest in such plays in Colombia, Germany, Poland, China and Indonesia.  Poland is the leader in shale gas development in Europe and China in Asia and Argentina now in Latin America.

There is accumulating evidence from onshore basins around the world that:

1. The term “mature” basin or province does not define a state of nature but a human state. The term “mature” is a description of the entrepreneurial imagination, technological capability, geologic knowledge and the matrix of laws and regulations that are imposed on oil and gas resources. Human choices, decisions and understanding are the constraint on oil and gas development, not the physical endowment. From the Permian Basin to the Paris Basin, from Pennsylvania to Poland it is now becoming clear that was “mature” according to yesterday’s received wisdom is once again a frontier or emerging play today and will be a core asset tomorrow.

2. The shale gas and tight gas resources in “mature” provinces far exceed the “conventional” resource base, usually by multiples. Low permeability gas is far more abundant than medium permeability gas which, in turn, is more plentiful than high permeability gas.  It is high permeability onshore gas that is “mature”. What is rapidly emerging and will soon eclipse the contribution of high permeability onshore gas are shale and tight sands gas and offshore, especially deep and ultra-deepwater, gas.

3. Shale gas and tight sands gas are not only vastly more abundant than “conventional” gas but are found in scores of countries: indeed no large country is without these resources and many small countries have notable endowments. In the next 20 years the global natural gas E&P industry will not only be far bigger and more valuable than in 2011 but it will also be much more diversified.  The age of Big Gas is now starting and Big Oil will be more accurately labeled Big Gas within a generation.

Brazil’s offshore, especially ultra deepwater, oil and gas discoveries are globally famous now. Much of the credit belongs to Petrobras, the state controlled publicly traded, integrated oil  company whose market cap makes it the third most valuable publicly traded energy company in the world( after  ExxonMobil  and PetroChina). Impressed by Brazil’s success several nations have become enthusiastic about offshore E&P in both Latin America and Africa.

The US GOM is still the largest offshore oil production area in the world but Brazil is very close and based on current trends will become the undisputed leader in less than 5 years. This is why Brazil is becoming the model for offshore development even as Texas and North Dakota are becoming the models for oil and gas shale development. Success attracts imitators.

 Petrobras is not new to offshore drilling, either in the GOM or Brazil. It discovered the Enchova field in 410 feet of water in 1977 and has been venturing steadily deeper. The Roncador discovered in 2003 is at 6,180 feet and the very impressive Lula field, discovered in 2009 and confirmed in 2010 is in 7,125 feet. Pilot production from Lula has already started. Petrobras operates 20% of all offshore production facilities in the world (almost 4 times as many as BP). Petrobras plans to invest over $100 billion in E&P in Brazil between 2010 and 2014 and double its oil production from the current level of 2 million barrels per day.

Brazil’s offshore discoveries are world class and the vast region called the subsalt (to distinguish it from another huge oil province in the same waters called the presalt, where the recent discoveries such as Lula and Cernambi are located) is still little explored. Petrobras will be the sole operator of all pre-salt fields and own at least 30% of all consortia developing these fields.  The sub-salt is open to foreign operations.

The Tupi field (2006, the first major pre-salt find) in the Santos Basin (5 to 8 billion barrels estimated reserves) made it the largest discovery in the Americas in 35 years. In September 2010, the Brazilian Government announced the discovery of the Libra field (reported at 5.5 billion barrels but already revised up to 8 billion barrels). The Libra is the largest oil field discovered anywhere in the world since the enormous Kashagan find (over 17 billion barrels) in Kazakstan in 2000.

Of course, it is not just Petrobras that is making impressive discoveries in Brazil. Devon Energy has announced a discovery in the pre-salt Campos Basin, quite close to the big Jubarte field. Devon has 7 exploration blocks in Brazil of which 6 are pre-salt. A joint venture involving Repsol, Sinopec, BG Group, with Petrobras as operator and 45% owner,  has made an important discovery of very light oil in the ultra-deep waters of the Santos Basin. Maersk Oil has discovered oil in the offshore Campos Basin in a license jointly owned with the Brazilian independent OGX.

Anadarko Petroleum which owns 7 exploration blocks in Brazil very recently revealed that it has a sub-salt discovery in the Campos Basin.  The significance of this is that the sub-salt is thought by some geologists, both Brazilian and foreign, to have even more oil resources than the pre-salt.

It is only in the past six years that exploration in the sub-salt has been taken seriously. Sub-salt exploration is now increasing and is likely to attract capital and talent from across the world in the next few years. At present the Santos, Campos and Espirito Santos basins are seeing activity but this will expand to Jequitinhonha and Camamu-Almada basins. Current commercial sub-salt production is all in shallow waters.

Brazil’s oil regulator startled the world E&P industry by guessing that the subsalt reserves are 50 billion barrels (compared with the 50 to 100 billion barrel estimate for the much better studied and explored  pre-salt). A Professor at Rio De Janerio State University, with 35 years experience as a Petrobras geologist, thought the guess grossly optimistic and decided to debunk the official estimate via an independent analysis. He ended up astonishing himself and the industry by guessing that the reserves were over 120 billion barrels, according to the CEO of HRT Participacoes em Petroleo , one of Brazil’s largest independent E&P companies.

HRT also claims that yet another tremendous exploration frontier exists in Brazil: the Amazon basin, a great expanse little explored for oil and gas. The Solimoes River Basin is the focus of HRT’s interior exploration. This basin is the third largest oil producing area in Brazil after Campos and Espirito Santos and has Brazil’s third largest gas field.

HRT has also discovered natural gas shale resources in the Solimoes River Basin. These could be very large (HRT estimates 35 to175 trillion cubic feet on its 21 blocks alone). If so, it would not be surprising since we now know that extensive shale resources are found in many parts of the world and the interior of every large nation has such resources. Given Brazil’s rapidly growing internal market for natural gas this resource could find a ready use, displacing imports.

Brazil is fully aware of not just the national but international strategic importance of its offshore energy resources. The country, reportedly, is pondering the construction of a multi-billion dollar underwater base to both protect its offshore treasure and explore under the ocean bed in deep waters for additional resources. The government, Petrobras and the navy apparently are collaborating in designing this base. The base would be continually occupied and serve as combined oceanographic lab and naval outpost on the edge of Brazil’s maritime boundary. It seems that the potential for oil and gas resources in depths at the edge of the continental shelf, about 350 nautical miles from the coast, is very high.  If Brazil starts to assert rights to energy resources in international waters, it will certainly set a global precedent and impel a worldwide rush to stake claims on hydrocarbon resources that belong to no nation and presently are not technologically accessible.

Directly across the South Atlantic from Brazil is Namibia. Once the two were united so it is only natural that companies should seek to imitate and at least modestly replicate offshore Namibia the successes offshore Brazil.

Namibia (about 1.5 times the size of France physically) is a small country in terms of population (a little over 2 million with a  functioning democracy) but its offshore basins are spread over 500,000 square kilometers and virtually unexplored. Less than 20 exploration wells have been drilled of which 4 are in the commercially producing Kudzu field (bordering South Africa).  The offshore basins are Walvis, Luderitz and Orange (shared with South Africa) moving north to south. Angola to the north is becoming a significant oil play.

Companies ranging from the majors and mini majors to obscure independents have secured or are seeking exploration rights. The state owned company Namcor has mostly an advisory and monitoring role and so far E&P companies have not been forced to offer any participation in prospects to Namcor.  Petrobras and HRT are exploring there (obviously) as are Shell, Gazprom, Tullow, BHP Billiton, Tower Resources, Energulf, UNX Energy, Acarus, Chariot Oil and Gas, AlphaPetro, Arcadia, Pancontinental Oil and Gas PetroSA and Sintezneftgaz.

Namibia’s offshore basins (as do Angola’s just to the north) have characteristics very similar to the Campos and Santos basins. HRT which has blocks in both the Walvis and Orange Basins maintains that the latter is currently the most interesting and potentially the home “giant” oil fields.  UNX Energy agrees with this assessment.

Chariot Oil and Gas, which has 8 blocks in the 3 offshore basins thinks that Namibia’s offshore basins have billions of barrels of recoverable oil resources plus trillions of cubic feet of gas.  Sinteznefgaz(in a consortium with Energulf, PetroSA and Namcor) claims to have found an offshore field with 14 trillion cubic feet of “reserves”. It is not possible to determine how precisely the term”reserves” is being used.

 HRT guesses that offshore Namibia has 50 billion barrels of recoverable oil. Such numbers would potentially make the Namibians the richest people, per capita, in Africa.

These are very early days for offshore oil and gas exploration, especially in deep and ultra deep waters not just in Namibia but in much of Africa, Asia and Latin America (this is true for ultra deep waters in the GOM as well). The clear message from Brazil is that the world’s offshore basins may have hundreds of billions of barrels of oil (and vast amounts of natural gas) waiting to be discovered and commercially developed in the next 10 years.

If so, the global offshore E&P industry is about to experience it’s most rapid growth yet and the South Atlantic region  may be poised to become a major exporter of oil and natural gas.

The more technologically and operationally challenging an oil and gas resource, the more abundant and geographically dispersed it seems to be based on evidence so far from many countries and basins. In Texas, Louisiana, Arkansas, New Mexico, Oklahoma, Pennsylvania, Michigan at least (and even in parts of Southern California and Europe)) the old is new again; mature provinces are frontier plays.

 As the Eagle Ford is like a sash across the breast of Texas from Louisiana to Mexico, so the emerging Wolfcamp is like a medallion across West Texas (over 30 counties) and Lea and Eddy counties across the state line in New Mexico. The Wolfcamp is an oil and gas zone(a gassy shale with high liquids ) directly below the Spraberry Trend, a very significant oil field with rapidly growing production and drilling activity. Some people call the Wolfcamp the Wolfberry Trend; others say it is the Wolfcamp Oil Shale so they can liken it to the Bakken. To the west of the Wolfcamp (and above it) is the now very popular Bone Spring Shale which is seeing weekly increases in investment, drilling and production from 3 oil producing zones ( includes the Avalon/Leonard which has attracted some of the largest independent E&P companies).

The Wolfcamp, so far, has been identified at depths of 5,000 to 15, 000 feet, with embedded limestones that can be 2,500 feet thick. Approach Resources, a small independent drilling in the Wolfcamp, calls it a source rock that is “world class” and says it has mineral composition and lithology similar to the Eagle Ford.  Pioneer Natural Resources, the largest acreage holder and producer in the Spraberry plans to drill horizontally in the Wolfcamp, which the company says is widely found across the company’s acreage (Concho and Endeavor are two other significant Spraberry producers).

El Paso Exploration and Production Company, with 170,000 net acres in the Eagle Ford has acquired 135,000 net acres in the Wolfcamp, to which it will apply the experience and knowledge gained from its  Eagle Ford and Haynesville shale businesses. The company claims 600 Upper Wolfcamp potential drilling locations. In comparing the Wolfcamp with the Eagle Ford El Paso finds well over twice the net thickness and twice the carbon content in the former..  This carbon content is about 60% of the impressive Bakken but the thickness is multiples that of the Bakken.

LINN Energy, an MLP which focuses on long lived oil and gas assets, has identified 400 low risk locations in the Permian Wolfberry (it is not clear if this means the Wolfcamp  proper or some combination of the Spraberry and Wolfcamp).

Chesapeake Energy which already has experience in the Eagle Ford, Bone Spring and the Avalon/Leonard is also active in the Wolfcamp and reports a prolific producing well there. Devon Energy is aiming at the Wolfberry together with the Bone Spring and Avalon/Leonard.

The Wolfcamp is readily accessible to several small, medium and large independents, given its proximity to The Eagle Ford, Granite Wash, Bone Spring and relationship to the Spraberry.  If early 2011 drilling results are as good as the industry expects, it will be well populated by companies that have the resources, relevant knowledge and field service relationships to go from discovery to development very quickly.

These days the time line from discovering a promising liquids rich shale play to commercial production has become astonishingly compressed. Independents know that first entry to accumulate a low cost position, rapid response to the specific characteristics of the play, and continual technological innovation are their competitive advantages.  Where the pioneering independent goes today, the very large independents will quickly follow and then, with their tremendous talent, engineering, service company and capital resources the mini majors and majors will arrive. Foreign E&P capital will also be eager to participate to capture both experience and returns. From emergent to core in two years is the new model.

In the past 24 months there has been a tangible acceleration in the discovery and rapid development of shale and tight sands plays in North America, especially plays that have extensive liquids windows. In 2011 this most positive tend shows no signs of abating.

US liquids production is now very likely to be higher over the next 5 years than it was over the past 5 years, especially when deepwater drilling regains momentum, perhaps in two to three years. The US is again a frontier E&P opportunity and reality.

By the end of this decade a small industry that started in an obscure basin in Texas and was dismissed by Government and Big Oil alike will likely be multicontinental in scope and strategically impressive in scale. Independents saw what Government is incapable of seeing and still cannot comprehend and Big Oil could afford to wait and see.

The Barnett has inspired not only a dry gas industry but a sub industry based on the unsuspected liquids window in the gassy shales. The production of gas liquids and oil from the liquids windows is spreading across several basins in North America and most likely will lead to US liquids production being higher at the end of this decade than it is now, again contrary to the confident pronouncements of Government and Big Oil.

The logical question independents and investors who like these companies and plays are asking:

      ” Will the dry gas (relatively low value per Btu at the moment)shale to gas plus liquids( higher value at the moment) shale to oil  shale( highest value at the moment) progression continue as the industry gains more knowledge and experience with shale basins?”

This translates into speculation whether the Bakken shale play prefigures a much larger set of global oil shale opportunities, just as the Barnett did a decade ago for gas shales but no one, of course, knew at the time.

It is important( and for investment reasons essential) to distinguish between the carelessly and unfortunately misnamed oil shales of Colorado and the oil shale of the Bakken in North Dakota and Western Canada. The former are kerogen shales and their production is a water and energy intensive mining and retorting industry. The latter are true oil shales and their production is a drilling (horizontal, multi stage, fracking) industry. There is almost nothing in common ion terms of process and economics between these two shales. Kerogen shales have been well studied and analyzed for decades; oil shales have not.

Kerogen shales are found in over 40 countries with the US, Russia, China, Jordan, Israel, Morocco having very large resources. There is commercial kerogen shale production in Estonia( direct combustion of pulverized rock to produce power and steam by the company Eesti Enertgia), China and Brazil( Petrobras) but the aggregate amount is equal to 20,000 barrels per day.

There are proposals to produce kerogen shale in Israel (although the recent enormous offshore gas finds in Israel will obviate the need for this) and Jordan (concessions have been granted to Royal Dutch Shell and Eesti Energia). Morocco has granted or is negotiating concessions with 3 companies, including Petrobras.

Kerogen shales, in their most economic use are substitutes for coal, not crude. They are a central power plant fuel, not a transportation fuel.

 It makes more commercial sense to convert natural gas and coal to liquids than kerogen and the former conversions hardly makes business sense anywhere, except as a technology hedge. The crack spread between kerogen or natural gas or coal values and gasoline, diesel and jet fuel values perhaps has to be as much as 1 to 10 on a per btu basis to justify the very expensive conversion black box based on currently knowledge and practice. This spread does not exist and in the absence of massive and sustained disruptions to the global oil supply chain is highly unlikely to exist.  The best substitute for conventional crude is unconventional crude.

The importance of the Bakken, of course, is that it is propelling rapid growth in oil production and hence jobs, income and wealth creation in North Dakota (and across the border). Drilling now is at an all time high. The State of North Dakota projects  that by 2017 North Dakota’s oil production will have risen to around 600, 000 barrels per day(bpd) from about 325,000 bpd at present, compared with only 450,000 bpd in onshore Alaska(according to the US Government) in 2017 and about 525,000 bpd onshore Alaska at present.

An initial study by the US Geological Survey (notorious for its miserable record in grossly underestimating oil and gas reserves over decades) claimed that the North Dakota Bakken had 4.3 billion barrels of recoverable oil. The latest official estimate is already 11 billion barrels.  Continental Resources, a leading Bakken producer,  says that at current economics and with current technology the North Dakota Bakken has 24 billion barrels of recoverable oil.

The US Government claims that total  US crude reserves at the end of 2009 were  only 21 billion barrels.

There are almost 170 billion barrels of oil in place in North Dakota according to industry estimates, so that as new generations of technology appear and business experience accumulates, the ultimate recoverable reserves may be scores of billions of barrels.

Australian-Canadian Oil Royalties Ltd reports that it may have discovered a formation similar to the Bakken in the Georgina Basin (Northern territory and Queensland). The company will participate in 2 multi stage horizontal frac wells via Baraka Petroleum.

The latter company recently released estimates of shale oil in place in 2 permits in the Southern Georgina basin of 5 to11 billion barrels.

 Another company in the Southern Georgina basin, Central Petroleum, announced significant shale oil in place resources in its permit areas. Like the tremendously productive Williston Basin (home of the Bakken) the Georgina is an intracratonic basin( found in continental interiors, well away from tectonic plate boundaries). Such basins occur worldwide.

The Arthur Creek shale formation in the Southern Georgina is very similar to the Bakken but with about 5 times the thickness. All 18 exploratory wells drilled so far have shown oil.

Australian geologists certainly seem to think they have found another Bakken. In another 15 to 18 months we will know if this indeed true.

It is not Australia, however, but France where the greatest industry anticipation and activity is building in the search for the next Bakken; in the well known Paris basin.

The Paris basin( current production of less than 15,000 bpd of conventional oil) covers the northern half of France and extends into neighboring countries. It is a vintage oil and gas basin. Over 2 thousand wells have been drilled and 52 fields discovered. It has extensive oil and gas shale deposits. The 3 oil shale formations are the Lower Lias , Amaltheus and Schistes Carton. The current focus of excitement is the Lower Lias with estimated oil in place resource base of a few billion to tens of billions of barrels. The estimates (guesses) for the oil in place in the other 2 formations are much higher.

Vermillion Energy is one of 10 companies positioning themselves in the Lower Lias. Vermillion reactivated a 25 year old ExxonMobil well using drilling techniques tried and refined in the US shale industry. Vermillion is the largest conventional oil producer (8,500 bpd) in France. Vermillion plans to spend $160 million to develop shale oil reserves in the Paris Basin.

Realm Energy International (it has a shale oil and gas development partnership with Halliburton) has also applied to be a significant explorer in the Paris Basin. The company has identified 17 potential oil and gas shale plays in Europe. It is already active in Poland. The company has also been awarded shale concessions in Lower Saxony, Germany.

Torreador Resources, an E&P headquartered in Paris, has perhaps the most ambitious plans for the Paris Basin in partnership with Hess which has invested $120 million (the figure could be $265 million with contingent payments) with Torreador to explore 1.7 millon gross acres in the Paris Basin. Hess has invested $1billion in the Bakken and plans to invest another $1billion there over the next 5 years. In addition to the Paris Basin, Hess thinks it has found a basin analogous to the Bakken in China.

Torreador asserts that an estimated 100 billion barrels of oil have been generated from source rocks in the Paris basin, of which 30 billion are in the Lower Lias. Its gross acreage position makes it, at present, the largest player there.

Torreador plans to drill 6 wells in the Paris Basin in 2011. Of these 2 each will be vertical, vertical/horizontal combination and horizontal.  The first 4 wells have been permitted and a drilling contractor secured. The first well will be completed in  February 2011 and the 6^th in October 2011. By the end of this year the company expects to complete well evaluation and design phase2 of its program.

We will know in less than 2 years whether other Bakkens exist and in 5 years whether the Bakken model is as  globally scalable as the Barnett. Enough oil and gas independent E&P companies appear to believe that it is for us to pay close attention. If the expectations materialize then hundreds of new independents will be formed to pursue the Bakken analogs all over the world. As the Barnett is the archetype for shale gas across the world, the Bakken may be for shale oil.

A few American independents with imagination, skill and courage pursued the Barnett and the Bakken while Government sneered and the integrated majors and mini majors either dismissed the potential or decided to wait until the opportunity was proven; knowing that they could buy their way in.

In shale natural gas the majors and mini majors are already spending many billions to buy their way in; they will do the same for shale oil.

Given how widely dispersed shale gas( and other forms of tight gas) is across the planet and shale oil( and other forms of tight oil) may also be, there are likely to be may be many  more countries producing oil and gas 20 years from now than there were 20 years ago.

The true globalization of oil and gas E&P is perhaps just starting.

In the mid 1960s the world's population( according to the International Database of the US Census Bureau) grew at over the twice the present rate. Thirty five years from now ,it is forecast,  the world's population will grow at less than half the present rate: a 75% reduction in the rate of growth in 70 years. This means that while it took about 3 decades for the global population to increase by 50%  to the present level of a little under 7 billion it will take 6 to 7  decades for the next 50%  increase and then virtual stagnation for a while followed by absolute decline. Clearly  the global population will age rather quickly and the worker to dependent ratio will decline tangibly over the next few decades in a majority of nations. Many nations will have to adjust to an absolute reduction in workers and to more grandparents than grandchildren.

World population growth over the next 4 decades will be driven by the Indian Sub-continent, Indonesia and Africa while currently economically, financially and culturally  important parts of the world will witness large absolute population declines, notably the entire European continent( particularly Eastern And Southern Europe) , Russia, Japan and South Korea.  China will have fewer people than at present and  population growth in Latin America will  be modest. The only advanced economy to experience population growth will be the US, because of immigration.

Small differences in fertility and death rates, especially infant mortality rates, have profound cumulative consequences.  Twenty five years ago China's population was larger than that of India and the US combined. In another 25 years India's population is expected to exceed that of China and in 40 years, it is projected that India's population will be only a little less than that of China and the US combined.

Twenty five years ago Russia(not the USSR) had the 5th largest population . Now it is the 9th largest. Twenty five years from now Russia's population will drop to 12 largest and in 40 years from now Vietnams' population will exceed that of Russia . Ethiopia is projected to have more people than Russia, Japan and Germany combined. At present Ethiopia's population is notably smaller than Russia and only slightly larger than Germany.

Twenty five years ago the US had a population equal to that of Japan, Germany(east and west) and Spain combined. At present the US population is somewhat  larger than that of Japan, Germany, Spain and Italy combined. In twenty five years the US is projected to have a population equal to that of Japan, Germany, Spain, Italy and France combined. In forty years the US population is anticipated to  substantially exceed that of Japan, Germany, Spain, Italy, France and the UK combined. The great majority of the growth in the US will be in the South, Southwest and Mountain states. Texas and Florida will sharply increase their share of the US population , economic activity  and energy use while Illinois and New York will see their shares much reduced and  California may simply stagnate in national shares(or fall if immigration is  less than forecast and the flight of the middle class out of the state continues at present levels).

The remarkable descent of Europe, Japan and Russia is  matched by the equally remarkable and transforming ascent of Africa. Twenty five years ago the largest African nation, Nigeria, ranked 10th, with a population not much greater than Mexico. At present Nigeria ranks 8th, having surpassed Russia and is about 40% bigger than Mexico. In twenty five years Nigeria will rank 7th with a population approaching that of Brazil, the largest Latin American nation and a population about 55%  bigger than Mexico. In another forty years Nigeria is projected to be larger than Brazil and about 80% larger than Mexico. However,  by then Nigeria will no longer be the largest African nation: Ethiopia will have surpassed it; with a projected population equal to that of Russia, Japan and Germany combined. Twenty five years ago Ethiopia had a population about a third that of Japan and close to that of Spain.

As property rights generally expand in the Global South and generally erode in the West, technology diffuses with increasing rapidity, risk capital and entrepreneurs follow opportunity in Asia, Africa and parts of Latin America and billions of very poor people seek to escape hunger, disease, illiteracy and immobility in the Global South multiple natural resource, consumer goods, computing and communications, entertainment, healthcare, education, transportation, logistics and military/police industries  will be transformed well  our ability to anticipate.

The demand for manufactured energy, especially electricity, protein, switched bandwidth, formal education,  personal transportation, clean water, sanitation and medical goods and services must increase by multiples in the Global South to enable billions to reach even a lower middle class level of comfort, convenience and material consumption.

The foundational resources upon which all else will depend are electricity, water, transportation fuels, iron ore, copper, vegetable and animal protein, cooking oils and switched spectrum. The most vital of these resources is electricity on which depend other foundational industries. The ascent from peasant and indentured menial labor to lower middle class and from lower middle to middle class; from rural to urban; from isolated to connected is powered by electricity given the nature of global technology and material preferences. The energy, particularly, electricity intensity of the global economy is about to increase hugely.

This ascent must entail per capita increases in the consumption of:  foundational resources, infrastructure, personal communications and mobility machines  and devices, formal education and organized healthcare that notably exceed the rate of population growth, especially in the poorest and most demographically expansive parts of the world : China's impact on global resource and engineered projects and goods markets is but a prelude to what may come next since many more Global South men, women and children have yet to rise from poverty into the lower middle class than have already escaped chronic and quotidian material deprivation.

There are only three widely accessible, planetary scale resources that can provide the vast majority of the additional electricity needed by the Global South over the next 4 decades.  These are coal, natural gas and nuclear power. Several other resources, of course, will be used but their combined share of new power generation will be quite small.

Big Oil will be matched and then surpassed by Big Gas over the next quarter century as a worldwide industry. Big Coal and Big Nuclear will expand dramatically, the latter more than the former, but neither will  match the growth in Big Gas over the next 2 and, cumulatively,  possibly the next 4 decades.

Technological innovation, risk and sovereign capital, greater understanding of the abundance and economic value added of natural gas and  the  entrepreneurial imagination are converging to immensely expand and transform the global natural gas industry.

The potential for conventional onshore natural gas alone in Africa, Asia and Latin America is still great. Siberia and Iraq are also little explored and natural gas resources in just those two parts of the world are believed to be most impressive.  There have been more onshore exploration wells drilled in the US than in all Asia, Africa and Latin America combined. It is a truism in the business that the more and better we seek, the more and in more abundance we find.

The deepwater natural gas resource , globally, is also very little explored and now believed to be huge as the recent discoveries in the Gulf of Mexico, offshore West Africa,  Western Australia, Brazil and Israel indicate.

The vastly greater potential is in tight sands, shale and coal bed methane formations: all of which ,it now appears, are widely found in the world. Over the next 5 years scores of billions of dollars will be invested in delineating, developing, producing, treating and transporting these new natural gas sources.

Then, of course, there is what might be termed the ultimate terrestrial hydrocarbon resource: methane hydrates, once a curiosity and still a nuisance but now within sight of becoming a useful energy source.  These hydrates are cages of ice within which methane is trapped. They are found all over the world in the sediment at the bottom of lakes, seas, coastal waters of oceans and in permafrost. Russian investigators discovered them first a few decades ago in Lake Baikal. The US currently has the most extensive research program followed by Canada and Russia  but it is India, China, South Korea and Japan that are most determined to begin commercial development of this staggeringly large and globally distributed energy source. The already identified methane hydrate resource is so tremendous that researchers estimate it has more than twice the energy content of all coal, oil and other natural gas resources combined, globally.

If the governments of South Korea, Japan, China and India are to be believed commercial scale methane hydrate projects could be reality in Asia before the decade is out.  Europe , Canada and the US may prevent commercial development within their borders and Russia is not currently interested but Asian nations have both the motive and will to proceed.

Global natural gas use(and supply) can readily increase by 50% in the next 10 years and double in the next 20  and then grow at 8 to 10% annually for another 2 decades.  Already the Global South and Russia produce and consume more natural gas than the West. Their market share will continue to grow apace and within 20 years the share of the West is likely to fall below a third and below a quarter within 25 years. Big Gas will be decidedly non-Western in terms of production, processing, transmission, distribution and use within a generation. Clearly this will provide the avenue for large oil and gas companies based in Brazil, China, India and maybe Australia and Russia to join the fraternity of the current integrated majors.

Coal is the dominant source of power generation in the Global South and in next 25 years coal fired generation outside the West will  probably  more than double.  However, the increase in nuclear power  and natural gas fired generation   capacity will be even greater as abundant natural gas makes rapid deployment of rather low initial cost capacity feasible and attractive( once the needed infrastructure is built) and as many nations, especially Asian countries deploy scores of new nuclear plants. The advanced gas turbine is efficient; is easy to locate even in dense metropolitan areas; has a low capital cost; can be constructed within months, requires very few skilled workers to operate and most of its lifecycle cost is the cost of fuel.

 Russia plans to deploy an additional 40 reactors over the next 25 years( 10 under construction), while China already has 26 nuclear plants under construction and plans to build scores more. India has 6 plants under construction and also plans to build dozens more. In addition Vietnam, Indonesia and Pakistan are expected to have new nuclear plants within 10 years. Brazil plans to build 8 plants over the next 25 years.

There are 441 nuclear reactors operating today, worldwide with the US, Japan and France accounting for over half the total. There are about 65 nuclear plants under construction globally, another 143 are planned over the next 8 to 10 years( of which  55 are in China and India versus 9 in the US) and over 330 have been proposed  over the next 15 or so years( 120 in China alone and 40 in India with Russia hoping to build 30 more  versus 22 proposed for the US , about the same number as proposed for the Ukraine). If mini reactors become popular, the number of proposed reactors will increase by scores.

Currently 1.5 billion people in the Global South have no access to electricity which means they are decoupled from opportunity and global transformation. This is why rapid and massive  electrification is such a priority for China and many  countries in Africa and Asia, especially India, Indonesia, Pakistan, Bangladesh, Nigeria, Uganda , and Ethiopia  where very large population increases will occur. Vietnam shows that where there is a will electricity can be brought to poor people rather quickly. About 15 years ago, half the people in Vietnam had access to electricity; now almost the entire population has this access. This trajectory will be replicated in many poor nations over the next 15 to 25 years.

 The point of speculation is to help construct  strategic and  investment scenarios, knowing that speculation is an aid to thinking about uncertainty, risk and complexity.

1. English will become even more dominant as the global language.

 This is because there will be substantial population  and literacy growth in the Indian Subcontinent, the Philippines, and in English speaking African nations such as Nigeria, Kenya and Uganda. English is already the language of commerce, higher education and of the governing elites in these countries. Moreover when Ethiopians want to talk to Vietnamese in the years head or Russians to Brazilians or Indians to Indonesians and the Chinese to Nigerians about business, trade, geo politics and policy coordination they will use English not Mandarin or Espanol.

It will be more important than ever  to know and communicate well in English in the next four decades . Already India is(after a fashion) the largest "English" (  "Indlish" being a dialect of English) speaking country in the world and Nigeria reportedly has more English speakers than the UK.

2. The Global South has already politely, obliquely and implicitly rejected Carbon Controls. In the next 5 years, it will do so impatiently, directly and explicitly. Russia will align itself with the Global South.  Increasingly global energy and environmental policy will be set by China, India, Brazil, Indonesia, South Africa and Nigeria with Russia supporting.

Europe and Japan have already been marginalized as factors in global policy making in energy and the environment. The US is on the verge of being ignored if it continues to limit domestic energy development to well below its potential;  demonize oil, gas and coal companies; be irresolute about nuclear power and hostile to deep water drilling.

It is through much increased electricity and carbon consumption that billions of people in Asia, Africa and Latin America will rise from wretchedness and fear  to attain a lower middle and middle- middle class level of material satisfaction, security and comfort. They will not be denied.

The global economy is about to become tangibly more electric and carbon intensive.

 The West has neither the will nor the money( for bribes to deploy uncompetitive and sometimes fraudulent renewable energy projects, the basis for many renewable programs in Asia, Africa and Latin America) nor the political power to prevent this.

What the Western upper classes  have forgotten or choose to ignore is that the more economically secure a society, the cleaner it is; the lower its infant mortality and  fertility rate;  the better care it can take of children, old and feeble people and the more its women are freed from drudgery and domination.

3. Leadership in coal and nuclear power plant and related systems design, engineering, procurement and  construction  as well as ultra high voltage long line transmission will shift to Asia within a decade. In the nuclear industry, Japan, South Korea, China and later India will take over leadership from the US, Canada and Europe although Russia will be continue to be important and successful. It takes a large and vibrant domestic market for companies to develop and refine the competences to be globally competitive. As the market shifts, so the industry value chain, talent and management skills shift, drawing resources and ambitious people from stagnant or low growth to high to very high growth markets.

Russian companies envision a market in the scores for floating and mini reactors(in which Russia leads) with initial niches being remote oil and gas field development in Siberia, several parts of Asia and Africa and water treatment and desalinization projects in several nations. Floating  reactors have already been designed and built  and are being deployed  by Russian companies. Mini, low maintenance,  reactors will appeal to dozens of small poor countries because they can be located close to or even in metropolitan areas.

In the coal industry,   power plant development and  international  trade is likely to be increasingly dominated by Chinese and Indian entities over the next 2 decades and Chinese and Indian ownership of coal mining companies and ventures will grow worldwide. Many coal companies or projects in Canada, the US, Australia, Colombia , Indonesia and parts of Africa will have Indian and Chinese  companies and investors  as majority or important minority owners.

 Ultra high voltage long line transmission systems may be an emerging industry heavily shaped by Chinese companies who will be world leaders in deploying such systems this decade, first domestically and then in parts of Africa and Asia. Very few such systems, which are extremely efficient and can transport  electricity over large distances from generation to market with negligible losses, will be built in the West because of almost impossible regulatory, permitting and siting obstacles.  Very large nuclear and coal generating complexes  with multiple reactors or mega coal plants( up to 5 Gigawatts of capacity per complex) are very well suited for such transmission systems. India and China are proceeding with such complexes.

4. As the scale, technological complexity, variety and sheer number of energy production, supply, transportation and distribution projects proliferates there will be increasing financial connectivity amongst entrepreneurial energy companies , private and state owned integrated oil and gas companies, private equity funds and sovereign wealth funds. Each participant will take the appropriate capital tranche in a mega-project or in a specially designed venture.

Capital flows out of the Global South into North American oil, gas and coal ventures( and to a much lesser extent Eastern European and Australian), projects and   medium to large  independent  companies will also become more common and substantial.  The Canadian and US oil and gas E&P industries are likely to see several billion dollars per year of  risk and expansion capital from China, India, Brazil and perhaps sovereign wealth funds or state owned companies in other Asian and Latin American  countries  this decade.

In addition, thousands of new  energy, energy technology and specialized energy services companies will be started or spun off in dozens of countries to participate in the unfolding energy boom in Asia, Latin America and now Africa. While hundreds will be started in the West as technology, talent, risk capital  niche operating experience or highly specialized knowledge bridges between the West  and the Global South, many times that number will be indigenous to the Global South. 

As property rights spread and are codified and institutionalized in scores of Asian, Latin American and African countries a boom in energy(and other foundational resources) boom will propel a boom in native energy entrepreneurship. In turn this entrepreneurial boom ( a happy dividend at the intersection of demographics, resources and property rights) will attract great amounts of private equity from all over the world and in turn lead to the gestation of dozens of new or  reoriented private equity funds.  

5. The non-hydro renewable energy industry will have to change its technology focus and business model if it is to be more than a minor niche in the Global South. The current model in the West is based on the monetization of subsidies and mandates. Low efficiency and/or  low capacity factors  as well as extensive use of land are common flaws. The food to fuel renewable industry makes little sense in the West and (outside the sugarcane to alcohol industry of Brazil)  no strategic or moral  sense in the rest of the world.   While the current Western model can be forced to persist  in stagnant electricity markets where renewable energy can be substitution or replacement energy it is not tenable in the Global South where large amounts of  net new electricity have to be brought online quickly, affordably  and repeatedly. over the next 3 to 4 decades.

 Relevant and advanced    solar  and ocean energy  technologies  that can provide reliable energy at prices competitive with non-nuclear  and non-hydro   generation will either be proven, developed and deployed  or renewable energy will be dismissed by scores of poor nations with urgent unmet needs as a Western hobby or self indulgence.

Examples of these new  technologies are solar towers that can produce power for hours when there is little or no sunlight; spray- on solar for the roofs and walls of buildings; embedded solar in consumer products; and self healing solar panels for use in remote, off grid ,locations where very high value added applications(refrigeration of medicine,  milk   fish and  meat) , communications and remote sensing justify the high capital and installation cost.

 Other examples are ocean thermal gradient heat to electricity conversion(particularly relevant to scores of Pacific islands) ; ocean wind (ocean winds are much stronger and more reliable than land winds leading to greater power production per unit of capital : joint ventures between off shore oil and gas drilling  companies and power generation companies are a possible business structure) and ocean tidal or current( The coastlines of many African, Asian and Latin American regions are extensive and their coastal waters attractive oil and gas prospects).

 This is, of course, the domain of entrepreneurial start ups and should these technologies become commercial hundreds of such start ups ,based mostly in Asia but also the Southern Cone of Latin America and South and Central Africa , will germinate. Of course, most of these frontier ventures will be formed  and seeded  by citizens or permanent residents of  the West ( especially the US ,  UK, Canada and Australia) who have no vested interest in legacy technologies and  business models.

Hybrid offshore oil and gas production and wind power generation projects will provide yet another growth and leadership opportunity for Chinese companies or foreign entrepreneurs  and energy companies seeking business in China. China is already the fourth largest offshore oil producer and has ambitious plans for deepwater and ultradeepwater hydrocarbon development. It also has world class capabilities in manufacturing and deploying wind turbines and, of course, a very big coastline. If the hybrid offshore energy production  model is proven, companies from India and Brazil(already very competent in offshore deepwater drilling) will be active.

Projections, scenarios and informed guesses are not predictions; they are not even high confidence forecasts. They cannot be because we do not and cannot know even the near term future much less one encompassing decades, continents, trillions of dollars and billions of people. The 3 perennial big unknowns that plague all forecasts and shape human history are still as potent as ever: Famine, pestilence and war.

Why famine? because according to those who study these things two powerful natural cycles are converging. sunspot activity and the earth's magnetic field  variation.  Sunspot activity is now very low and the sun seems to entering a periodic multi year or multi decade "quiet" period. This means less solar wind sweeping over the earth, allowing more cosmic rays to reach the atmosphere leading to much greater cloud cover, which means more rain and snow and less sunlight on the surface of the earth.

The earth's magnetic field is declining and is now about 40% of its average ( the earth's magnetic field makes an "excursion" roughly  every 11,500 years--it declines to 20 to 25%  of average  strength and  then returns to average strength.  If the  field declines to about 15% of average  strength the magnetic poles switch. This is called a reversal. Excursions are much more frequent than reversals, which are truly catastrophic events )  These "excursions"  are accompanied by multiple, large scale, changes on the planet). The decline is accelerating . At present the magnetic north pole is drifting from North America to Siberia with increasing rapidity. The   last "excursion" was the Gothenburg event when field strength declined to 20% of its average, magnetic inclination changed by 180 degrees and field intensity fluctuated widely.

As the geomagnetic field declines both plate tectonic activity and atmospheric electrical violence increase. This means big increases in below ground and underwater vulcanism, earthquakes and tsunamis and C-14 formation in the atmosphere(Nitrogen is converted to Carbon by electron capture as a result of atmospheric electrical activity); the production of other elements such as Iridium and Strontium in the atmosphere also increases. It literally rains carbon and other radioactive elements  under these conditions.

The  relevant consequences of the convergence of these natural cycles is more violent weather  and  more extreme weather conditions as well as more flooding and shorter crop growing seasons. In turn this means lower yields and more crop damage leading to rapid food inflation and actual deprivation for the poorest people. The combination of many more people in the poorest parts of the world and reduced food supply, of course, results in famine and the multiple evils that ensue.

Any positive adaptive response by the world will entail energy, bio engineered product, and capital requirements by  global agriculture well beyond those currently anticipated.

Famine,  floods, volcanoes, tsunamis and earthquakes  surely make a mockery of our forecasts and pretensions.

It is the peculiar conceit of billionaires in New York and California that we control and influence nature and shape planetary destiny. On the contrary it is nature that dominates us and controls our destiny. The natural order determines the human material  and physical  condition, not the other way around

Why pestilence? As billions more people become more mobile and physically connected, infectious diseases can spread rapidly and savagely around the world. We all know what happens when traditionally separated peoples come into contact: they exchange unfamiliar germs. The lethal influenza epidemic of 1918 that spread with ferocity and speed around the world was supposedly the consequence of  infected  soldiers moving around the world. The panic and hysteria( and associated conspiracy fantasies and fabricated plots) engendered by  even a low fatality global epidemic, much less pandemic, would cripple some industries and impair several economies. In a connected world thousands of deaths from an epidemic can create worldwide fear and disruption: millions of deaths can lead to economic , political and  social catastrophes.

Why war? Famine and pestilence can lead to war; as can deprivation, envy and fear. Wars based on hatred of the "other" during times of great change and disruption are frequent enough as are wars of opportunism and conflicts over foundational resources. When people or polities feel threatened enough by the "other" they often go to war. When ambitious nations covet the wealth and resources of other, weaker, nations or seek to exploit the lack of will and purpose in competitors they often use war to further their dreams of power and avarice. As  one world order fades and another struggles to be born, we are entering an interregnum, one where geostrategic conflicts and violence become more not less likely.

It has been observed frequently that demographics is destiny. This is why it is both useful and important to try to comprehend global demographic change, its intersection with property rights and technology and wonder   what this means for both our investment and  personal lives.

It may also be worth pondering that ,compared, with any conceivable human need for energy in the 21st century, nuclear, methane hydrate, solar and ocean energy resources are limitless. When the energy supply constraint ceases to be binding all other resource constraints are also relaxed and healthy, educated, free and entrepreneurial people become a nation's most valuable resource.