BACKGROUND: First there was the shale gas revolution. Thanks to technological advances in horizontal drilling, the U.S. natural gas industry has undergone a revolution whereby new techniques are expected to deliver vast amounts of cheap natural gas from U.S. underground shale-rock formations.
There was a time when this gas was once considered unfeasible at reasonable cost, and companies had planned Liquefied Natural Gas (LNG) terminals in order to accommodate U.S. natural gas imports.
Yet now major energy companies such as Exxon believe in shale gas and America faces a domestic supply glut of natural gas. LNG terminals are now discussed in terms of how much they can export.
EVENT: Now shale gas technology has set off America’s shale OIL revolution. Where there’s natural gas in shale, there tends to be oil as well. Previously, even with the new drilling technology that made shale gas cheap, producers thought that they would have to leave shale oil behind since it was too expensive to tap.
Not anymore. Now companies such as EOG Resources (EOG) believe they have the technology to not only produce cheap natural gas from U.S. shale, but to produce oil at a competitive cost as well.
IMPACT: America has potential oil shale reserves well over five times the oil reserves of Saudi Arabia and now companies have begun to tap them at a competitive cost, see how below:
How The Shale Gas Revolution Just Became America’s New Domestic Oil Revolution >
Disclaimer: The author Vincent Fernando does not own shares in EOG. This piece doesn’t say anything as to whether EOG or any shale-related company is or is not a good value at its current price. Companies or individuals the author works with may have positions in EOG or shale-related companies. The author Vincent Fernando owns shares of Chesapeake Energy (CHK), a shale gas-related company. Everyone must do their own complete due diligence.
This is how horizontal drilling works. It substantially increases the potential contact area between a well and resource-containing rock.
Horizontal wells also offer more targeted access. This allows them to tap reserves under places we might not want to disturb, such as a town or forest.
The great news is that oil particles are small enough to be collected by the same technology used to grab natural gas from shale.
Importantly, horizontal technology can produce high quality oil profitably since it scales off of the same infrastructure used to get gas. It could be more competitive than oil sands or deep water drilling.
EOG alone could have massive amounts of potential new economically-feasible oil thanks to new technology.
Most of it is still too expensive to produce... but EOG's efforts show how America can begin to scratch the surface of oil shale potential and cut its dependence on foreign oil producers, even Saudi Arabia.
Conclusion: Game changer. EOG is just an early example of what's likely to come from other companies as well. Just wait.
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