Shale Boom and the Development of Modern Economy

 

In case you have not yet heard about the recent shale boom in the Niobrara region of the country, which touches in seven different states, it is perhaps the most recent oil-related hot spot in a string of newsworthy oil endeavors in the United States. Comparatively speaking, we are not known for our abundance of oil rich areas. However, you may recall one or more recent news stories about freshly discovered areas, including rigs off-shore of Kodiak, Alaska. The Niobrara shale formation has recently experienced similar oil potential, albeit of a different sort. The shale covered region is located inland, and obviously produces a different mineral resource, or what some people like to call Niobrara chalk. Furthermore, the Niobrara region is a geologic formation of the shale mineral likely set in place somewhere around 85 million years ago.

It has since been discovered that this region, which stretches into Colorado, Nebraska, Wyoming, South Dakota, North Dakota and two other states, is a vast oil-laden shale formation that sits underground in these states. Practically on queue, big energy companies have been mobilizing to harvest the area of useful natural resources. Upon hearing of the discovery of such valuable potential, I actually overheard a colleague say, “Here we go again! Another sparsely populated region of the country on the verge of joining the shale boomtown.” In all honesty, he had a good point; there certainly have recently been a number of these hot spots popping up around the country.

Likely the biggest hot spot in the recent shale boom, is located in the Denver-Julesburg Basin region of Colorado. Two large energy companies have begun working in the area to tap the shale formation, which is now believed to hold even more oil production than originally imagined. In fact, some believe it may hold one third more oil than initially expected.

Most notably, Texas-based companies such as Noble Energy have provided estimates on the increasing volume of oil that is to be pumped from the Niobrara region. As mentioned, in some estimates, this figure has reached over two billion barrels of oil.

How is this possible? Well, when a company such as Noble Energy owns the mineral rights to thousands of acres in the Niobrara, they in essence, hit the proverbial gold mine, or in this case, shale mine. What’s more, the company also expects to invest upwards of $10 billion for its presence in the Niobrara region over the next five years, which they are obviously expecting a significant ROI from.

As you can see, with the development of new processing and manufacturing methods, oil and natural gas is being produced more frequently from the Niobrara region’s Denver and North Park basins. Similarly, the For Hays area of the Niobrara region is often mined for materials used to produce cement.

Due to the relatively unexpected natural resources found in the Niobrara region and other similar shale formations around the country, many experts predict that the United States has the potential to become the world’s leading oil producer over the next 20 years. Unbeknownst to most, however, the U.S. is not the only country tapping its shale formations. In fact, other countries such as China and Argentina have started to develop similar activity albeit on a much smaller scale than our focus on the Niobrara region.

The process of tapping these shale formations is expensive as seen from the billions of dollars that Noble Energy is putting into its operations in the area. However, due to such high entry costs, it has and will likely continue to create an imbalance leaning in the favor of larger companies with more capital and that can afford to invest large amounts of money into sparsely populated, yet mineral rich areas. For smaller companies, this means missing out on the shale boom in these areas, as well as subsequent long term potential income. I use the phrase “long term” because in some cases, even the larger companies have struggled to find profits as the investment in areas similar to Niobrara largely outweigh any generated income in the short term.

Conclusion

Whether it is the influx in offshore drilling on the West Coast, or the shale boom that is creating oil-laden hot spots in sparsely populated regions of the country, the United States is currently seeing mining and drilling activity at an increase. In fact, as mentioned, some experts believe our country will be the world’s largest oil producer by 2035, which is an astounding thought since we have spent decades seeking out oil from other countries, now only to find that there were hidden resources in our very own backyard.

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