The Next Texas Oil Boom

March 7, 2011

New drilling techniques combined with climbing oil prices are fueling the next oil boom for Texas and the western United States.

According to statistics published by Baker Hughes Inc the number of oil rigs aiming for oil in the U.S. is roughly twice as many as a year ago and a remarkable 10 times more than a little over a decade ago.

Deposits of oil-locked shale rock formations previously thought to be too expensive to extract are now economically viable thanks to new drilling techniques that have only recently been deployed in the field. The new oil fields opened by use of this new technique could out produce the entire Gulf of Mexico by 2015 according to many analysts.

Companies looking to exploit the new drilling are investing billions of dollars to open up vast oil fields across Texas and the western states. Companies such as Royal Dutch Shell, BP, Occidental Petroleum, and Chesapeake Energy are eager to apply many of the same approaches that have revolutionized the natural gas industry to oil drilling.

The Eagle Ford Shale of South Texas is one area where this been applied. While still in the early stages of use it is expected to transform the play into the 6th biggest oil discovery ever in the United States. Late last year China's state-owned oil company CNOOC and Chesapeake Energy entered in a $1 billion deal on a project in the Eagle Ford.

However, some critics say all of this economic benefit will come at a different price; namely, environmental impact. The new technique being exploited is similar to the hydraulic fracturing used with great success in recent years in the natural gas industry to tap natural gas trapped in underground shale.

The approach employs a method of horizontal drilling into rock and pumping in a combination of water and chemicals to break up the shale releasing trapped natural gas. Many people fear that wastewater from the process could pollute drinking water supplies. The Environmental Protection Agency is now studying the safety of the technique.

Until recently the process was not thought to be practical for getting at trapped oil. However, refinements to the technique including methods of creating more cracks in the rock and use of different chemicals have made the practice cost effective for oil drilling, especially given the rising price of oil.

Coming at a time when domestic oil production is entering a third decade of decline the new oil fields are expected to raise U.S. domestic oil production by at least 20 percent over the next five years.

Of course, increased domestic oil production translates to decreased oil imports. All of this could lead to reducing America’s dependence on foreign oil by around 60% by 2020 according to one study. At today’s oil prices that would mean almost $200 billion annually kept in the American economy rather than sent abroad.

Hydraulic fracturing has been so successful in extracting natural gas that it has lead to dramatic declines in the price of natural gas in recent years, which in turn has helped to keep the price of electricity in Texas below the national average. Although this technique when applied to oil fields is expected to appreciably increase domestic oil production, worldwide demand for oil is so huge and ever-increasing that no similar decreases in oil prices should be expected as a result. However, the impact on U.S. energy security cannot be overstated. The economic benefit to Texas could be felt for years or decades to come.