Operators have had to deal with lower cash flows and tight credit, forcing them to focus on mature plays like the Barnett and Fayetteville Shale, or high profile emerging plays like the Haynesville, Marcellus and Bakken Shale. The Floyd Shale is another promising unconventional resource play in North America but it has not received enough capital from the exploration and production industry to determine its true potential.

IN PICTURES: Eight Ways To Survive A Market Downturn

Floyd Shale Potential
The Floyd Shale is located in Mississippi and Alabama, and is sometimes referred to as the Neal Shale. It is an Upper Mississippian formation that is located in the BlackWarriorBasin. The Floyd Shale is similar geologically to the Barnett Shale in Texas.

Since there has not been a lot of industry development activity in the Floyd Shale, it is difficult to assess the nonrenewable resource potential. In 2007, the U.S. Geological Survey (USGS) conducted an assessment of the basin. Since several other shale plays underlie in or near the BlackWarriorBasin, the USGS survey included the Floyd Shale, the Chattanooga Shale as well as all other undiscovered oil and gas in what it called the "Paleozoic Total Petroleum System."

The USGS divided the basin into two assessment units: Carboniferous Sandstones and Pre-Mississippian Carbonates, and estimated the undiscovered resources to be:

Resource Amount
Oil (MMBO*) 5.9
Gas (BCFG**) 1455
Natural Gas Liquids (MMBNGL***) 7.6
*million barrels of oil
**billion cubic feet of gas
***million barrels of natural gas liquids

These numbers understate the true potential of the play, however, as the estimate is based on very little data and lists only the conventional resources that are undiscovered.

Testing Floyd Shale
Denbury Resources
(NYSE:DNR) is one operator that has tested the commercial viability of the shale prior to the fall in commodity prices. The company drilled two wells in LamarCounty in 2006. Neither of these wells were commercially successful. The first one didn't produce enough natural gas and the second one could not be hydraulically fractured.

Carrizo Oil and Gas (Nasdaq:CRZO) is one of the few exploration and production companies that still mention the Floyd Shale in its marketing materials. The company has 71,000 acres under net lease, but is devoting no capital toward the play in 2009, as it concentrates on the Barnett Shale.

Cabot Oil and Gas (NYSE:COG) reported a well in the Floyd Shale in October 2007, but did not give further details. The well was a vertical well that was used to evaluate the shale play.

Murphy Oil (NYSE:MUR) was also evaluating the play, and drilled three test wells back in 2005 and 2006. The company did not release any details of the wells. This is not unusual in North America, as operators don't want the price of land to increase prematurely.

Range Resources (NYSE:RRC) drilled a test well also in 2007. The company had 50,000 acres under net lease as of early 2008.

The Bottom Line
The Floyd Shale is not ready for prime time, as the industry was forced to reallocate resources to shale plays that were certain to provide an acceptable payoff. This one will have to wait a little longer before its potential is known. (For a primer on the oil industry, refer to our Oil and Gas Industry Primer)

Related Articles
  1. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  2. Chart Advisor

    Copper Continues Its Descent

    Copper prices have been under pressure lately and based on these charts it doesn't seem that it will reverse any time soon.
  3. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  4. Stock Analysis

    What Exactly Does Warren Buffett Own?

    Learn about large changes to Berkshire Hathaway's portfolio. See why Warren Buffett has invested in a commodity company even though he does not usually do so.
  5. Investing

    How to Spot Secular Bull Markets vs. Secular Bear Markets

    A guide to identifying secular bull and bear markets.
  6. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  7. Financial Advisors

    Bull vs. Bear Markets: How to Be Prepared for Both

    Bull and Bear Markets are a reality that every investor must be prepared for. Here are a few tips.
  8. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  9. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  10. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. Do hedge funds invest in commodities?

    There are several hedge funds that invest in commodities. Many hedge funds have broad macroeconomic strategies and invest ... Read Full Answer >>
  3. Do interest rates increase during a recession?

    Interest rates rarely increase during a recession. Actually, the opposite tends to happen; as the economy contracts, interest ... Read Full Answer >>
  4. What are the risks of annuities in a recession?

    Annuities come in several forms, the two most common being fixed annuities and variable annuities. During a recession, variable ... Read Full Answer >>
  5. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  6. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>

You May Also Like

Trading Center