Shell Oil Shale

Royal Dutch Shell in-situ oil shale facility in Colorado. Photo credit: Wikipedia/U.S. Geological Survey Department of the Interior/USGS 

For years we've known that America was sitting on a simply remarkable oil resource. Some estimates suggest that our oil shale potential could exceed 6 trillion barrels of oil. It's one of the most concentrated hydrocarbon deposits on earth.

There's just one problem. Oil companies haven't figured out the key to economically extract these massive oil shale deposits. While much of big oil, including Royal Dutch Shell (NYSE:RDS-A) (NYSE:RDS-B) and Chevron (NYSE:CVX) have given up trying, ExxonMobil (NYSE:XOM) is renewing its efforts to tap oil shale after previously shutting down its attempts in 1982.

What is oil shale?
America is in the middle of an oil boom as the combination of horizontal drilling and hydraulic fracturing unlocked our large shale or tight oil resources. Oil shale, however, isn't to be confused with shale oil despite the similar name. Oil shale, which is also known as kerogen shale is an organic-rich fine-grained sedimentary rock which contains kerogen. Basically, it's a solid mixture that contains hydrocarbons in a way similar to Canada's oil sands. Because it's solid it can't easily be drilled and produced.


Photo credit: Wikipedia/Mion 

America's oil shale deposits are found in Colorado, Utah and Wyoming. The richest resource is the Green River Formation in Colorado, which contains about 80% of the recoverable oil shale. Estimates suggest that 600-800 billion barrels of oil could one day be recoverable from this oil shale formation, once the key is found. For perspective that's more than twice the oil reserves of Saudi Arabia.

Finding the right approach
Finding the key to unlocking oil shale is difficult as it can't be produced through conventional drilling. Because of this oil producers have attempted to extract the oil using unconventional approaches such as mining it. While mining works in parts of the oil sands in Canada, it didn't work for ExxonMobil in the oil shale, which is why it gave up years ago. Instead, ExxonMobil's latest attempt will be to take another page from the oil sands and use an in-situ extraction process. In-situ, which means in place, is a process where a number of different wells are drilled with some injecting hot water or steam to heat the hard oil and other wells used to produce the oil.

Shell, however, recently abandoned a 31 year attempt at extracting oil shale. The company's Mahogany project in Colorado was an experimental in-situ project, but it couldn't produce commercially viable oil from the oil shale. Likewise, Chevron also recently abandoned its in-situ oil shale extraction project. The company's experimental process, which is called CRUSH and stands for Chevron's Technology for the Recovery and Upgrading of Oil from Shale is pictured to the right. The process simply didn't work to produce commercially viable oil.


Chevron's CRUSH Photo credit: Wikipedia

ExxonMobil is hoping that its new step-by-step approach will enable it to find the key to unlocking the estimated 600 million barrels of oil that are believed to be contained within its 160-acre lease. This new plan includes an appraisal phase that will drill a few test wells to install the technology it needs to monitor the area followed by wells to be used to heat the zone. The final phase will include a pilot test that will determine the commercial viability of the process on a field scale level.

Investor takeaway
Investors shouldn't hold their breath that ExxonMobil will find the key to unlocking our massive oil shale resources as the company makes its latest attempt. That being said, the industry never thought it would find the key to unlocking tight oil resources like shale. So it goes to show that where there is a will, the industry will try until it finds a way as there are literally trillions of dollars worth of oil buried in these oil shale formations.

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Matt DiLallo has no position in any stocks mentioned. The Motley Fool recommends Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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