Global Shale: A Potential Bonanza For Suppliers

by: Doug Sheridan

Shale oil and gas production in the U.S. has been revered by some as the fuel, engine, and vehicle driving the nation toward energy independence and economic solvency.

Astronomical estimates of trillions of barrels of oil-equivalent reserves, millions of high-paying new jobs, enhanced competitiveness for American industry, greater tax inflows for state and federal governments, and incremental export revenues for producers justify the volume of discussion.

While shale has at once become both disruptive and transformative, it's also here to stay. The International Energy Agency (IEA) estimates the share of U.S. oil and gas production attributable to shale is projected to double by 2035.

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Meanwhile, the rest of the world trails in development of shales and other non-traditional carbon resources, including use of the highly developed methods, such as hydraulic fracturing, needed to extract them. This is the case despite combined reserve estimates that are equally as cosmic, or even larger, throughout the world as they are for North America.

As we see it, this overwhelming scale of economic potential all but guarantees, at least eventually, high levels of shale development in other corners of the globe. Some regions may be extra guarded in adopting processes met with significant concerns, even opposition, over environmental concerns. But in a time of pandemic recession and tenuous geopolitical proceedings, shale's economic promise and magnitude seems too great for all to ignore.

Supplier Encore In The Making

The abundance of potential shale plays around the globe makes it anyone's guess as to which regions will embrace the shale future most quickly and in the most determined manner. The more sure bet, EnergyPoint Research data suggest, is on the need for importation of the shale-oriented expertise possessed by North American oilfield suppliers, as international and state-owned E&P companies dare not go it alone.

Just as Texas-born drill bits helped opened the world's oilfields for exploitation over a century ago, domestic fracturing and other shale-oriented products and services perfected in the U.S. are now poised for second lives of purpose and prosperity overseas.

So why are we so confident international shale plays portend a veritable bonanza for suppliers? Because we've seen the performance data, and they tell a compelling story across the spectrum, including in terms of overall satisfaction, performance, reliability, technology and engineering. What's more, the performance data exist across contract drilling, oilfield services and equipment manufacturers.

Clearly, suppliers and E&P companies have worked well together when it comes to shale development. And the record, by our account, reflects that suppliers have performed very well, outpacing as a whole their own performance across nearly all aspects of non-shale-related applications.

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Promise For Top Performers

E&P companies with experience in North American shale have already begun planting proverbial stakes in fields across the globe. As a result, shale-related investment seems poised to materialize, at least in the longer term, in places like China, India, and parts of Africa and Latin America.

As carbon extraction is an extraordinarily cooperative process, every play that is developed presents a growth and profit opportunity for suppliers owning demonstrated expertise in shale. Onshore contract drillers like Helmerich & Payne (NYSE:HP), Nabors Industries (NYSE:NBR) and Precision Drilling (NYSE:PDS) -- which offer unmatched know-how when it comes to efficiently and dependably drilling shale-oriented wells -- should be commonsense participants in the process.

Pason Systems (OTCPK:PSYTF) -- the highly rated maker of controls and instrumentation for drilling rigs -- will also be invited to the party. And the products and services of Newpark Resources (NYSE:NR), a standout in solids-control and drilling fluids, will be in demand.

The right drill bits will certainly be required -- good news for Baker Hughes (BHI) and Schlumberger (NYSE:SLB). Halliburton (NYSE:HAL) -- the acknowledged leader in hydraulic fracturing -- is very well positioned to benefit as demand unfolds internationally. Should they chose to play, other independent providers with bona fide North American hydraulic fracturing and related experience -- companies like C&J Energy Services (CJES) -- will be in the game as well.

A World Of Opportunity

North American E&P companies and their supplier partners are the de facto world leaders in managing shale and other unconventional fields because of the continent's early discovery and ready exploitation of such resources. Their advantage goes beyond a simple head start. In fact, industry suppliers with expertise in shale development rate among the highest in customer satisfaction of all the upstream supplier sectors we track in our independent surveys.

The research also confirms the best performers in the supplier community tend to earn the highest investor returns over time, and vice versa. Given the potential size of the global shale plays, these patterns seem destined to only deepen with time.

Clearly, no one can accurately pinpoint the size of unconventional carbon development activity worldwide until the soft rock layers begin to be cracked. Yet no one can deny that these development prospects present a world of opportunity for high-quality, proven suppliers.

Interest in and enthusiasm for the practiced North American perspective is certainly pervasive. As ExxonMobil CEO Rex Tillerson told Fortune magazine in the April 16, 2012 issue concerning the global shale opportunity, "[Foreign governments and NOCs] admire our industry because of what we can do. They are almost in awe of what we are able to do."

Industry suppliers deserve a lot of the credit. And it's our belief that they and their stakeholders, including investors, will benefit enormously as the global shale saga advances.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: My firm, EnergyPoint Research, does and/or seeks to provide for-fee data subscriptions to oil and gas industry participants and stakeholders, including companies covered in its reports and articles.