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Big Oil eyes natural gas

September 23, 2009
TOPICS: Natural gas
Shale plays have gotten the attention of independent oil and natural gas producers, and now "Big Oil" is eyeing shale basins.

Exxon is reportedly studying ventures in shale production and their potential success could pave the way for major oil producers to become major natural gas producers.

A three-part series by NPR explores the attraction of shale plays and the impact the natural gas reserves those fields hold will have on the energy industry.

From NPR's most recent story:

The major oil companies haven't been paying attention to the U.S. for decades," says Robert Hefner, a 50-year veteran of the natural gas business with a company of his own, GHK Exploration, in Oklahoma City. "It's been a lot of independents like us that have found all this gas, developed the technology and made it happen."

Hefner attributes the proliferation of small natural gas companies to the fact that individual landowners generally retain the mineral rights to their own property. "In America, if [your] dream is to drill a well, you can go out and drill a well," Hefner points out. "As a result, there's been about three-and-a-half-million wells drilled in America over the years, versus about a million and a half for the rest of the world."

Many of those natural gas wells are mom-and-pop operations, or began that way. Often they evolve into slightly larger companies, but even the publicly traded companies are generally small. Those that survive in the energy world have learned to leverage their size.

"We certainly don't have an advantage when it comes to capital," says J. Russell Porter, chairman and chief executive of Gastar Exploration, a Houston-based company with just 23 employees. "The large companies can spend a lot more money than we can. But we can be very quick on the draw, if you will, to seize an opportunity and buy into a new concept or a new area that we think could be prospective for natural gas. If we do that, we usually have a first-mover advantage."

The agility of small companies is an important strength in a field where the ability to move fast is key to maintaining a competitive edge. But there is also a more practical reason small companies dominate the U.S. natural gas business. Typically, a new gas well produces in abundance in the year after it's opened, but then production begins to decline. If a natural gas company is to keep production and revenue steady, it has to keep drilling new wells. The energy majors may not have the patience for that effort.

"Big oil companies like big projects that they can manage over 30 and 40 years," says Nikos Tsafos, natural gas analyst at PFC Energy in Washington. "They prefer those over the project that you need to stay on top of every single day, every single month."
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