Finally! Something happened yesterday that doesn't have anything to do with interest rates, monetary policy, or the currency wars! Peter Bond, you beauty! Just when we thought the market would go gently into the weekend without strong leadership from an emerging powerhouse sector, news of a significant kind arrives.
--It's hard to know what to make of Linc Energy's announcement that there could be $20 trillion worth of oil locked in Australian oil shale formations. The geology looks promising. That is, there is probably oil or something very much like it trapped in the Ackargina Basin in South Australia.
--But Bond, Linc's CEO, says it could be 3.5 billion barrels at the low end...or hundreds of billions of barrels at the high end. At 233 billion barrels, Aussie oil reserves would be the second-largest in the world. Only Saudi Arabia would have more black gold.
--However, as any non-greenhorn resource investor knows, estimated resources are not the same thing as proven reserves. Reserves are what you can extract economically. Resources are what may be in the ground. There's a big difference.
--We're particularly interested in the story because we've been personally following it for almost eight years now. In 2005, your editor paid a trip to Shell's Mahogany Ridge project in western Colorado. There were no other analysts or media on the trip. It was a handful of mayors from surrounding towns wanting to know what Shell was up to, if jobs were coming, and what affect the operations would have on local power and water.
--Back then, it was clear there would be no oil produced from shale - either through unconventional in situ production or conventional retorting - for a long time, if ever. But then technology came in to the picture and changed everything. Oil bearing shale formations were laden with gas, which was originally seen as a by-product and un-extractable in commercial quantities anyway.
--Horizontal drilling and hydraulic fracturing changed everything. And the American shale gas boom began. Later, the same technology that unlocked trapped gas in shale was used to extract oil. Peter Bond is saying the same thing can happen here in Australia - which is why Linc's shares jumped as much as 30% yesterday.
--Whether it should or will happen in Australia is an entirely different matter. It's a geology question, an investment question, and a public policy question. But at the very least, it shines a light on the companies already moving towards commercial extraction of shale gas from the Cooper Basin.
DHR Price at posting:
3.5¢ Sentiment: Buy Disclosure: Held
