With majors and independents alike constantly searching for the next big shale play in the United States, we have seen renewed interest in the Chainman Shale.
It’s a little known area encompassing the eastern central portion of Nevada and stretching into Utah. All totaled the area covers about 20 million acres. According to some estimates, the Chainman could contain over one billion barrels of oil.
The shale has both an oil and gas window. Exploration companies liken the oil window to the Bakken (Devonian) and the gas window to the Barnett. The Chainman Shale is the source rock for many of the larger fields in the region, such as the Railroad and Pine Valley fields in Nevada.
Skin in the Game
Currently, E&P companies have leased over 1.6 million acres. Noble Oil & Gas has leased over 350,000 acres. Cabot, EOG, SM Energy, Petro-Hunt, Newfield and several smaller entities have acquired the remaining acreage. About 70% of the minerals are managed by the Bureau of Land Management (BLM). The terms of most fee leases have maintained the characteristics of BLM leases – 10 years with a 1/8th royalty. Typical bonuses range from between $25 to $35 per acre, but some bonus payments on Federal lands have been as high as $80 per acre.
While the terms of the leases are generous compared to other shale plays, lessees must deal with myriad BLM environmental restrictions. The most notable of the restrictions have been in regards to the Sage Grouse. The BLM is trying to prevent exploration on the bird’s “priority habitats.” They claim drilling activity and subsequent traffic will disturb their vital habitat, which would open them up to attack by predators, such as the raptor. Somewhat ironically, raptor nesting areas are also protected by the BLM. If drilling activity in the Chainman Shale increases, there are probably more environmental regulations to come. Given the so-called environmentalist’s death by 1,000 cuts approach, I’m sure there are multiple snails and lizards peacefully residing above the Chainman Shale that will also need saving.
Doing the Numbers
So far, no wells have validated the Chainman Shale as an economic play. Cabot drilled one well that proved to be inadequately pressurized. Since then, they have begun shooting seismic in the region and plan to drill another well in the near future. 2013 will undoubtedly be a pivotal year for the Chainman Shale. It could turn out to be the next Barnett/Bakken, or the latest bust.
Now it’s your turn. What have you heard about the Chainman Shale? Do you think it’s a viable play, or another case of fools rushing in? Please leave a comment below.