Tickers in this Article: CRZO, PVA, QEP, LINE
The extent of some of the emerging shale and other unconventional plays in North America is still being determined by the energy industry, as several exploration and production companies have recently reported non commercial wells in these areas. This may contradict the conventional wisdom among investors that all acreage in these plays will be equally commercial. ARTICLE: Oil And Gas Industry Primer

Gold Rush
The shale gold rush began with the Barnett Shale more than a decade ago, and has since spread all over North America as operators looked for the next best unconventional resource play to exploit. Since few wells have been drilled and completed into some of these areas, the span and productivity of these plays has yet to be determined.

As more wells are drilled into new areas, there may be sharp valuation adjustments by the market as core and second tier acreage evolve in these plays. This evolution can be demonstrated by examining the Barnett Shale, where core, tier one and tier two areas are delineated.

Carrizo Oil and Gas (Nasdaq:CRZO) has 47,000 net acres in the Barnett Shale, and has 21,000 of these acres in what the company considers the core part of the play. The company has another 18,000 net acres in the tier one area, and 8,000 net acres in the tier two part of the play. This distinction makes a large difference in productivity as wells in the core area have higher production rates and estimated ultimate recoveries.

Emerging Plays
QEP Resources (NYSE:QEP) has just started developing its acreage with exposure to the Niobrara in Wyoming. The company reported that its first horizontal well was uneconomic and would be plugged and abandoned. QEP Resources has a total of 84,000 net acres exposed to this play, and the failure of one well does not mean that all the company's acreage is non productive.

Linn Energy (NYSE:LINE) recently drilled its first horizontal well into the Granite Wash in Oklahoma, and reported that the well was producing below expectations. The company has completed many successful Granite Wash wells on the Texas side of the play.

In February 2011, Penn Virginia (NYSE:PVA) reported that several wells drilled to the Granite Wash at the Powell prospect were marginal due to a high water cut, as the hydraulic fracturing process exposed the well to nearby water intervals. The company also reported that wells drilled at the East Sayre prospect were non commercial. In November 2010, the company also reported a non commercial well at the Mountain View prospect.

An unsuccessful well does not mean that the entire prospect is non productive, as an operator can tinker with the design of the well. Penn Virginia is not taking any chances in 2011, and is directing all its Granite Wash development into the South Clinton field.

The Bottom Line
Investors are buying into companies with exposure to some of the emerging shale and other unconventional plays in North America, even though the scope of these plays has yet to be determined by the industry. (For related reading, see ETFs Provide Easy Access To Energy Commodities.)

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