Junior Oil Firms: Not All Doom and Gloom

"The idea is that you drill a horizontal well to maximize the exposure of the well bore to pay and then frac that, but if you have a heavily fractured set-up that limits the extent to which you may be able to laterally drill and that could be an issue. But we don't know yet."

Henderson said whether shale gas can be produced or not will be proven one way or the other during the next six months after UK onshore shale gas driller Cuadrilla Resources was recently granted permits to carry out exploration in northwest England.

Shale Oil 'Does Not Work' at $50 per Barrel

Over in the United States, Henderson sees "the big debate" as being about the viability of onshore shale oil.

"I have looked at some of these shale operations in some detail and I can categorically tell you that at $50 per barrel, it doesn't work. Period! Unless, of course, the cost of the wells comes down dramatically," he said.

"The big problem is that most of these wells cost about $8 million each to drill … Some of the better wells now are producing above 1,000 barrels per day initially and then you get this very dramatic decline. So, there's no question that the absolutely best-performing wells work but they are very much at the end of the Bell Curve, those wells. And I think your average well, which is probably kicking off at about 500 to 600 barrels per day, will not work. They just will not work."

A major problem is that many small-to-medium sized companies involved in shale oil drilling have funded their drilling programs with debt.

"They are quite heavily indebted and there will be these debt redeterminations coming in April when, basically, the reserve base upon which the debt capacity is calculated will be significantly downgraded because the reserve base is going to be calculated at a much-lower oil price," Henderson said.


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