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:
|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)
Mutual Funds & ETFsGet information about some of the most popular and best-performing mutual funds that are focused on commodity-related investments.
ProfessionalsAlthough market crashes are usually bad news for your portfolio, there are several ways to minimize losses or even profit outright from market movement.
Chart AdvisorAgriculture stocks have experienced strong moves higher over recent weeks, but chart patterns on sugar, corn and wheat are suggesting the moves could be short lived.
Mutual Funds & ETFsLearn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
Investing NewsWill Ferrari's shares move fast off the line only to sputter later?
Investing NewsShares of Glencore International, a leading multinational commodities and mining company, jumped by around 15% on London Stock Exchange, after the shares had gained about 71% earlier on the Hong ...
InvestingCommodity prices have been heading lower for more than four years, being the worst performing asset class of 2015 with more losses in cyclical commodities.
Stock AnalysisHere are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
InvestingThe further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
InvestingGrowing global demand for quinoa has impacted Bolivian farmers' way of life. Should the American consumer be wary of buying this product?
Annuities come in several forms, the two most common being fixed annuities and variable annuities. During a recession, variable ... Read Full Answer >>
When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
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 >>
A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>