Petro River Oil Corp. (PTRC)

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Finding Cheap Oil in the 21st Century: Some Go Back to Basics

By Mitchell Posner

It was less than three years ago when the IEA predicted that by 2020, the US would pump past Saudi Arabia to become the world’s largest oil producer, and a net exporter by 2030.

Today, it seems farfetched. Let’s consider what happened and what it says about the future. The IEA isn’t run by idiots and indeed, oil production was rocking. According to the Energy Information Administration (EIA), US crude output rose from 5.5 million barrels per day in 2010 to 7.5 million barrels in 2013, and as 2016 began, to 9.2, , an increase of 3.7 million barrels per day in what can only be considered the relative blink of an eye.

What happened? In short, the rise of the resource play. There is no single definition of the term, which became fashionable about 10 years ago. The simplest description I could find is “an accumulation of hydrocarbons known to exist over a large regional area.” But the term also connotes a large area and low risk. So it’s a prospect that is very likely to contain a lot of oil.

“Large deposits and low risk?” Wall Street loved it, and so did the banks. Companies that were identified as resource plays began trading at high multiples compared to their peers. Adding resources was given priority over costs. In the past five years, American and Canadian oil and gas companies borrowed more $1.3 trillion.

It worked very well, for two reasons: new technology and the high oil price. Companies could develop previously unexploited resources and enhance recovery and commerciality within existing plays.

This approach changed the map. North Sea? The Middle East? Old news. The “new oil patch” ran from Alberta, Canada, down through the shale fields of North Dakota and South Texas to huge offshore oil deposits found near Brazil.

What happened next?

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