Americas News
Shale Writedowns Spell Trouble for Energy Majors
Reductions in energy companies' estimates of the value of their U.S. shale assets are prompting questions about the so-called "fracking revolution," according to Reuters columnist Jack Kemp.
Shell announced just over $2 billion in impairments related to North American shale properties on August 1, citing "the latest insights from exploration and appraisal drilling results and production information."
BG Group and BHP Billiton have also announced writedowns of U.S. shale assets.
Kemp quotes Financial Times writer Guy Chazan arguing that the re-evaluation of assets is "bad news for U.S. shale."
"Over the past few years, the oil majors have been punch drunk on U.S. shale," Chazan wrote.
"Now comes the hangover."
Kemp argues that the problems are not industry-wide but related to the specific situations of Shell and other oil majors that were late to invest in shale and ended up overpaying for relatively low-quality assets.
Falling gas prices have also made it difficult for companies to profit from some shale resources, forcing them to shift focus to formations containing crude oil or condensates.
Kemp writes that the shale industry, particularly from 2007 to 2011, "exhibited all the signs of a bubble," resulting in overpriced assets and oversupplied markets, but that fracking technology still has strong potential.
"Gas and condensate producers have been victims of their own success," Kemp writes.
"Prodigious output from fracked gas wells has crashed the price of natural gas and more recently of condensates such as ethane, propane, butane and natural gasoline."
A June report from the U.S. Energy Information Administration (EIA) found that shale resources represent 10 percent of oil resources worldwide and 32 percent of natural gas, although there are significant questions about how much of the resources are economically recoverable.
