That's a surprising comment, whether or not you work in the energy industry. Not only are economically recoverable resources a precondition of all oil and gas development, but for years the industry has been bedeviled by an array of negative "above-ground risks." These are factors that can turn the most geologically attractive opportunities into nightmares: contract disputes and weak or inconsistent rule of law, expropriation, government sanctions, armed conflict, and more. It's less common to talk about favorable above-ground factors.
Mr. Finley isn't the first to try to explain why the shale revolution--in this case for oil but also for gas--has taken off with such gusto in the US while lagging elsewhere. He highlighted the size of the US drilling rig fleet as a key factor. Other, frequently cited factors include a private property system enabling landowners to own mineral rights and negotiate to sell or lease them, along with established pipeline infrastructure and networks of oil service providers. However, it was the rig fleet that stuck with me from last Tuesday's webcast, and after exploring the data on this, I concluded that Mr. Finley hadn't chosen randomly.
The chart on the right displays 20 years of rig count data from Baker Hughes, an oil services firm that has been tracking drilling rigs for decades. Not only does the US have the most rigs today, but over the last two decades it has operated between 42% and 57% of the drilling rigs in the company's global tally.
In 2013 the US and Canada together have averaged 63% of all rigs in operation. Compare that to Europe, which some have suggested could be shale's next big frontier. As of April only 85 land-based rigs were operating in Europe, while there were 1682 in the US. At a country level, the comparison is even more dramatic, with only 7 rigs operating in Germany and just 4 in Poland.
Why is this difference important? The answer goes beyond the simple statistical probability of striking oil or gas and the "law of large numbers." For starters, shale development is drilling-intensive. Mr. Finley indicated that the remarkable surge of production from the Bakken shale formation in North Dakota is the result of drilling more wells in that one area in the last two years than in Canada.
It's also relevant that the large US rig fleet was quite busy long before the first horizontal shale gas or tight oil well was drilled and hydraulically fractured, or "fracked" here. Over 2.5 million oil and gas wells have been drilled in the US since the late-1940s. No other country comes close to that number, so no other country possesses as much actual data on its sub-surface geology. Many of the shale formations being produced today were identified decades ago, and some even produced for a time, with much more limited success, using older techniques.
Another advantage of having had so many rigs in operation for so long is inherent in the experienced crews that operate and maintain them, and the network of suppliers that provides drilling bits, pipe, fluids and various components and services used in their operation. While North American companies can redeploy rigs from one resource to another, as the number of US rigs drilling for oil instead of gas rose from 36% to 80% within the last three years, companies in most other regions would have to build or buy large numbers of rigs, train crews, and develop entire supply chains in order to scale up for shale.
Although it certainly contributed to US success in shale gas and oil, having an enormous rig fleet doesn't convey a permanent edge. Countries such as China, for which onshore rigs aren't included in Baker Hughes's rig data and which may have over 1,000 onshore rigs in operation, have both great shale potential and the wherewithal to realize it if they choose. Meanwhile, other countries may elect not to make these investments, preferring to focus on other aspects of energy, such as energy storage or renewables. That's another way in which what's above ground matters more than what's under it.