UPDATE 2-Saudi Aramco selects lead underwriters for $100 bln IPO -WSJ
* JPMorgan, Morgan Stanley, HSBC selected as lead underwriters-WSJ
(John Kemp is a Reuters market analyst. The views expressed are his own)
By John Kemp
LONDON Nov 20 Hydraulic fracturing ("fracking"), the technology which revolutionised the U.S. oil and gas industry, has started to make its first cautious forays overseas.
FTS International, formerly known as Frac Tech, one of the leading suppliers of hydraulic fracturing equipment and services in the United States, has signed joint venture agreements to supply well-completion products and other services, including pressure pumping, in Saudi Arabia and Brazil.
On November 13, FTSI announced a joint venture with Brazil's PETRA Energia to provide completion services to onshore conventional and unconventional oil and gas wells (www.ftsi.com/).
Based in Rio de Janeiro, the joint venture plans to begin operating in 2013, and will focus on the Sao Francisco and Reconcavo sedimentary basins in Brazil's North East.
The joint venture will deploy 22,500 horsepower of FTSI's pressure pumping equipment in the first stage before developing manufacturing and additives businesses locally to meet local content requirements.
Earlier this year, FTSI announced a joint venture with Summit Technologies, a subsidiary of Selected Arabia, to provide well services and pressure pumping in Saudi Arabia and Oman.
Selected and Summit were founded by Rami Ali Al-Naimi, son of Oil Minister Ali Al-Naimi. FTSI's joint venture has taken it into the heart of Saudi Arabia's petroleum establishment.
Summit has a long-term services agreement with Saudi Aramco to provide equipment and services for exploration, production and refining (www.selectedgroup.com/).
TESTING THE WATER
FTSI manufactures custom pumps for its own mobile pressure pumping units, and owns and operates its own sand mines, sand processing and resin coating facilities to ensure a dependable supply of proppant.
In the third quarter, FTSI deployed pumping equipment with a total of 1.5 million horsepower, and fractured 338 wells across the United States, making it one of the largest suppliers of pressure pumping services in North America.
The number of wells fracked between July and September was almost 30 percent below the same period in 2011, reflecting the slowdown in gas-related drilling activity, according to the company's financial statements.
In September, however, the company raised $350 million of new equity capital from its existing shareholders with the declared purpose of paying down debt and providing flexibility for "potential future expansion into international markets, such as Brazil, the Middle East, China and Indonesia."
FTSI's overseas ventures remain very small compared with the huge size of the U.S. hydraulic fracturing industry.
But they will be a key indicator of whether the horizontal drilling and fracturing technologies that have revolutionised production in North America can achieve a similar transformation elsewhere, and whether pressure pumping specialists can escape from the glut of natural gas and liquids at home by expanding overseas.
In 2011, the U.S. Energy Information Administration published an initial assessment of world shale gas resources that put the total at 6,622 trillion cubic feet -- six times as much as in the United States.
The study examined 48 major sedimentary basins with significant shale gas potential in 32 countries outside the Middle East and Russia ("World Shale Gas Resources: An Initial Assessment of 14 Regions Outside the United States" April 2011).
Major deposits are much more widely distributed than conventional gas. The EIA study concluded there were likely to be world-scale resources in China (1,275 trillion cubic feet). Argentina (774 trillion cubic feet), South Africa (485 trillion cubic feet), Canada (388 trillion cubic feet), Brazil (226 trillion cubic feet), Poland (187 trillion cubic feet), France (180 trillion cubic feet) and a host of other countries.
The estimate of technically recoverable shale gas deposits would roughly double estimates of conventional gas resources.
Ironically, the Sao Francisco and Reconcavo basins were not among those assessed by the EIA, which concentrated on Brazil's three southern regions (Centre West, South East and South). But if fracking really is about to go global, the first indications could come from the North East.
Widespread distribution of shale resources promises greater supply security through geographical diversity, reducing dependence on the current group of large conventional suppliers, many of which are located in unstable parts of the world.
The EIA study was restricted to gas but has fuelled speculation that similar volumes of oil might be found in shale formations around the world, since the formation of oil and gas deposits is similar, extending reserves and breaking the industry's dependence on producers in the Middle East.
Many seasoned industry observers have cast doubt on whether the fracking revolution can be exported from the United States and whether production of shale oil will ever be on a large enough scale to transform the global oil industry.
"If the revolution continues in the United States and extends to the rest of the world, energy consumers can anticipate a future dominated by cheap gas. However, if it falters and the current hype about shale gas proves an illusion, the world will face serious gas shortages in the medium term," Professor Paul Stevens wrote in a 2010 report for the Royal Institute of International Affairs ("The Shale Gas Revolution: Hype and Reality").
Observers have been even more sceptical about the transformative potential of shale oil.
Stevens and others have pointed to sharp differences between the petroleum industry in the United States and other countries. The geological, regulatory and industry conditions which spawned fracking are not replicated in Europe and elsewhere ("The Shale Gas Revolution: Developments and Changes" August 2012).
The United States benefited from favourable geology (large and relatively shallow sedimentary basins with big technically recoverable resources) that was unusually well-explored. The oil-rich Bakken shale, for example, was discovered in the 1950s.
In most of the world, subsurface mineral rights belong to the government. But in the United States, subsurface rights were in private hands, creating stronger incentives to develop them, and helping exploration and production companies buy off opposition from local communities by offering royalties.
The United States benefited from a large oil and gas exploration sector, dominated by a myriad of small entrepreneurial firms, supporting by numerous service companies. The country also had an extensive network of gas-gathering and transmission pipelines in place and a well-developed gas market to transport and sell all the gas coming from shale plays.
Most of the big shale plays that have been developed so far have been in the traditional oil and gas producing areas such as Texas, Oklahoma and North Dakota. Local and environmental opposition has been much stronger in the U.S. Northeast and in Europe, where communities have not had to live with oil and gas production before.
France has banned fracking, putting the enormous Paris basin out of bounds, and in Poland the early results from fracked wells have been disappointing.
Fracking is unlikely to transform Europe's oil and gas production for the foreseeable future. It may have more potential in emerging markets across Latin America, the Middle East and Asia.
If FTSI's joint ventures are successful, however, they will help transfer the technology to new areas and potentially export the shale revolution to Brazil and the Gulf.
Progress on both joint ventures will be keenly watched to see if the shale revolution really is about to go global. (Editing by William Hardy)
* JPMorgan, Morgan Stanley, HSBC selected as lead underwriters-WSJ
CALGARY, Alberta, Feb 21 ConocoPhillips has revised down over a billion barrels of oil sands reserves because of low global crude prices, a company filing showed on Tuesday, the latest sign that some of Canada's vast hydrocarbon potential may be left untapped.
MELBOURNE, Feb 22 Woodside Petroleum Ltd said on Wednesday it sees its output rising by about 15 percent over the next three years, and flagged plans to expand near-term output in Western Australia as it seeks to defy views that it is short on growth.