The exploration and production industry is slowly moving to develop the Mancos and Niobrara Shales, two early-stage plays in the Western United States. Although the industry is currently focusing most of its attention elsewhere, these discoveries prove that shale oil and gas are here to stay for the long term.

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The Mancos Shale is an Upper Cretaceous shale that underlies large portions of Colorado, Utah and New Mexico, in areas like the Piceance, Uinta and San Juan Basins.
The Niobrara Shale is also an Upper Cretaceous oil shale and is in some of the same areas as the Mancos Shale. The Niobrara Shale is 500-800 feet thick in Colorado, where some exploration and production companies have been exploring.

Discussed During Conference Calls
Quicksilver Resources (NYSE: KWK) discussed these two shales during its third-quarter earnings conference call in early November. The company has assembled a block of 100,000 net acres in the Green River Basin in Wyoming and Colorado, and it has drilled two vertical wells that are undergoing completion in the area.

EOG Resources (NYSE: EOG) also has acreage in the Niobrara Shale in the North Park Basin in Colorado. During its 2008 analyst conference, EOG Resources talked up this play and disclosed that it had 100,000 acres under net lease in that area.

The company drilled the Buffalo Ditch 1-32H and reported an initial production rate of 550 barrels of oil equivalent (BOE) per day from the well. EOG Resources estimated it had anywhere from 10 million to 80 million BOE of reserves from the North Park Basin. The well costs were approximately $6 million and yielded 250,000 BOE of reserves each.

During EOG's Q4 2008 conference call in February, the company said it was going to "defer further significant activity in this project until oil prices recover". The company found lower-hanging fruit in the Bakken Shale and is moving to develop that first.

Rocky Mountain Plays
Bill Barrett Corp. (NYSE: BBG) has significant acreage in the Uinta Basin and other plays in the Rocky Mountain area. The company is developing the West Tavaputs field in the Uinta but is not currently targeting the Mancos Shale. The company recognizes its potential but believes the shale's stage is too early to focus on.

"Shale programs in the Rockies, just in general with this industry, are still very early in the game," said Fred Barrett, CEO of Bill Barrett. "I think there's still a lot to learn. In my opinion there's going to be a number of very attractive, prolific shale plays that emerge in the Rockies. It's a matter of getting the right technologies applied and following through on those technologies."

One micro-cap energy company developing the Mancos Shale is Gasco Energy (NYSE: GSX). The company has dedicated $10 million in capital expenditures in 2009 to drill wells targeting this formation.

Bottom Line
Despite the recession and the resulting drop in prices for oil and gas from the peak, the exploration and production industry is seeking the next big shale play in North America. (Learn about factors that affect oil prices in our article, What Determines Oil Prices?)

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