Bakken Shale oil rig in North Dakota. Source: Flickr user Lindsey G

Oil shale and shale oil refer to the same thing. But, neither term actually refers to the oil that has changed America's energy future. That oil, which is often referred to as shale oil simply because it is oil produced from shale formations, is technically known as tight oil. With so much confusion among the terms, and billions of dollars at stake, let's explore the world of oil and shale.

What is oil shale?

Technically speaking, oil shale and shale oil both refer to an organic-rich and finely grained sedimentary rock that contains kerogen. Kerogen is a solid mixture of organic chemical compounds that can produce liquid hydrocarbons. This is why oil shale is also sometimes referred to as kerogen oil, or kerogen shale.

America is thought to be sitting on the world's largest oil shale reserves. In fact, it is estimated that America holds 3.7 trillion of the world's 5 trillion barrels of known oil shale resources. Most of America's oil shale deposits are found in the Rockies, with the Green River Formation in Colorado thought to contain 80% of America's oil shale reserves. There are estimates that also suggest America could one day figure out how to economically recover 600-800 billion barrels of its oil shale resources. If that dream did become a reality, America would then have twice the recoverable oil reserves of Saudi Arabia.

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

The problem is that oil companies have yet to figure out how to economically produce much of this oil. Big oil companies like Royal Dutch Shell (NYSE:RDS-A) (NYSE:RDS-B), Chevron Corporation (NYSE:CVX), and ExxonMobil Corporation (NYSE:XOM) have been searching for ways to access this oil for decades. Most have simply given up, though ExxonMobil did recently renew its oil shale efforts earlier this year as it restarted a project it had previously shut down in 1982. However, until someone cracks the code on oil shale, there simply aren't any opportunities for investors to make money at this point.

What is tight oil?

Oil that's produced from shale, or tight oil, is oil that is contained within rock formations that have low permeability, meaning they're not very porous, so the oil has trouble flowing through it. This oil is typically found in shale formations or even in tight sandstone. Because these rock formations don't allow the oil to flow very easily, producers have to drill a well horizontally in order to access a larger portion of the reservoir. From there, energy companies hydraulically fracture the rocks to create a pathway for the oil to flow. That pathway is then propped open with sand or ceramic proppants.

With the key to unlocking tight oil from shale found, producers have unlocked a bountiful supply of it. In fact, according to estimates from the U.S. Energy Information Administration, there are at least 345 billion barrels of technically recoverable tight oil around the world found in the shale basins on the following map.

Source: EIA. 

For perspective, tight oil now represents about 10% of the world's total known technically recoverable oil resources (which excludes oil shale). Furthermore, tight oil in the U.S. now represents 26% of our total technically recoverable oil -- which again excludes our oil shale reserves -- and now totals 223 billion barrels of oil. That's a pretty decent amount of oil considering America uses about seven billion barrels of it each year. 

Worldwide, Russia actually is the leader in technically recoverable tight oil resources with 75 billion barrels of oil. America follows at 58 billion barrels, while China, Argentina, and Libya round out the top five. As these countries begin to tap their own tight oil resources, it has the potential to shift the balance of power in the oil markets, which is what we're seeing in America as our oil imports dwindle, loosening our ties to the Middle East. 

Why the difference matters

Knowing the difference between these terms matters because "oil shale" (and "shale oil" technically speaking) refers to oil that currently isn't economical to recover. So, if a company promises big money by investing in oil shale, just say no. Instead, where profits can be made is in tight oil produced from shale. It offers investors a remarkable profit opportunity both in the U.S. and abroad. 

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.