McClendon says no more major shale discoveries in the US

By Oil & Gas Financial Journal staff

Aubrey McClendon, chairman, CEO, and founder of Chesapeake Energy, one of the first oil and gas producers to develop shale gas properties in the United States, says the “discovery bonanza” in the US is over and that investors shouldn’t expect major new shale discoveries.

Speaking to a group of investors and industry analysts from Chesapeake’s headquarters in Oklahoma City, McClendon said investors shouldn’t hold their breath in expectation of major new shale finds “because there won’t be any.” In added that, by the end of 2011, “It will all be over.”

In response to questions that Europe, India, China, South Africa, and other global areas have yet to develop their shale reserves, McClendon said that Chesapeake isn’t planning any foreign investments.

“We aren’t going to Poland. We aren’t [even] going to Canada,” he said. “In terms of spending Chesapeake capital overseas, I don’t see it.”

Instead, the company plans to shift its focus from natural gas to crude oil. McClendon said the company is sitting on about 10 billion to 15 billion barrels of crude oil reserves, which he says will eventually change the valuation of the company.

Michael Lynch, a consultant with Gerson Lehrman Group, says that McClendon’s assessment is grim news for the natural gas industry.

“For about a year now, there has been a steady drumbeat of natural gas company announcements of their shift in focus from gas to crude oil,” says Lynch. “But the reason for this crude oil pursuit has not been that no more shale gas plays existed. The reason is steadily declining gas prices from about $5 million/Btu to $3.60 today.”

Lynch added that while some plays (Woodford and Fayetteville, for instance) are mature and some new wells are marginal, there are others that are in the early stages of development.

“The Marcellus is big and barely developed,” he says. “It will continue to grow for several years yet. The Haynesville, too, has several years to run, as does the Eagle Ford. But Eagle Ford operators are shifting to the northern oil rim and the middle rim ‘condensate window.’”

Lynch adds, “Given the high decline rates for all shale gas wells and the steady price pressure from an overwhelming volume of available LNG, the shale gas era in the US could taper off beginning in 2012 and end by 2020.”

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