“We haven’t seen any impact”

Chevron's new boss is skeptical about the US shale rush

The shale fever sweeping the United States and spreading around the world has not infected everyone. The new chief of the second largest US oil and gas company Chevron, John Watson, told the Financial Times that he does not intend to enter the race to produce shale gas. “The price tag is too high to attract the necessary investments,” he noted. “We haven’t seen any impact.” The collapse of gas prices on the American market, which followed the boom in the country's hydrocarbon production from shale, put companies that invested in the new Klondike beyond profitability.

The second largest shale gas producer in the United States, Chesapeak Energy, which operates in six major shale basins in the country, continued to increase production and reserves last year by 15%, to 400 billion cubic meters of gas, and by 8%, to 23.6 billion cubic meters respectively. However, due to an almost three-fold drop in the average gas selling price, its revenue decreased by $5 billion, and operating losses amounted to almost $9 billion. Chesapeak's net loss ended up being $5.8 billion. At the same time, the company's debt load exceeds $13 billion .

Moreover, even a very successful year in terms of gas prices in 2008, when Chesapeak sold raw materials extracted from shale at almost $300 per thousand cubic meters, brought shareholders a modest $500 million in net profit. The explanation for this phenomenon is growing operating costs and the need to service previously taken loans.

Recently, the head of another large shale developer EQT Corp. Murray Gerber told Bloomberg he expects industry production to fall as prices don't generate "significant" returns. According to him, producers need at least 6.5--7 dollars per million British thermal units (that is, approximately 230--250 dollars per thousand cubic meters). There have not been such prices in the United States for almost a year and a half, and now gas is trading at less than $4 per million Btu ($140 per thousand cubic meters).

However, some companies still succumbed to the shale boom and began to invest money in a new direction. In particular, at the end of last year, global oil and gas leader ExxonMobil acquired hard rock gas specialist XTO Energy for $41 billion. The cost of the deal included $10 billion in XTO debt, which is comparable to Chesapeak's financial position. However, it is possible that ExxonMobil primarily paid not for the commercial prospects of shale, but for the opportunity to put significant reserves on its balance sheet (about 1.27 trillion cubic meters of gas in the Barnett Basin). It turned out to be about $5 per barrel of oil equivalent, or about $32 per thousand cubic meters of gas. ExxonMobil's own reserves immediately increased by 10%, raising its capitalization. Although the prospect of returning these reserves is still unclear. Other large companies have also acquired shale assets (in production or exploration), including the French Total, the Italian Eni and the Norwegian Statoil.

However, in its long-term forecast for global energy development until 2030, ExxonMobil is betting on shale. The company estimates that in 20 years, about half of gas needs will be provided by unconventional sources (primarily shale, coal seams and offshore production). They already bring about 40% of total production in the United States (or 35% of domestic demand), and by 2030 their share will grow, according to the American company, to two-thirds of production and 50% of the market. Only 35% of demand will be met through onshore gas production. Another 10% of consumption will be covered by imports of liquefied natural gas, which was previously considered the main promising source of supplies to the United States. And only 5% of consumption will be provided by pipeline gas imports from Canada.

Alexey GRIVACHS