Oil firms keep discovering reserves, so why is another new shale oil and gas discovery such a big deal? In a market where most oil companies are finding it difficult to maintain their production levels because of depleting resources, Anadarko's (NYS: APC) discovery of a huge reservoir in Colorado's Wattenberg is in fact a big deal not just for the company but also for the industry.
Hitting pay dirt
The discovery is being considered one of the largest in recent years. The reservoir is expected to hold more than 1 billion barrels of recoverable oil and natural gas, which is mind-blowing and places Wattenberg in the league of major shale plays like Bakken Shale and Eagle Ford.
Anadarko is confident it can drill 1,200 to 2,700 wells in northeast Colorado and expects an average annual production growth rate of 20% from the area from 2010 to 2012. The fact that Anadarko also operates pipelines and gas processing plants in the region gives it an added advantage.
The find can help Anadarko turn its fortune. By the end of last year, Anadarko had 2.42 billion barrels of oil equivalent at its exposure. The Colorado discovery along with the discovery of 10 trillion cubic feet of gas off the East African coast assures Anadarko a longer field life and provides a great opportunity to increase production.
The bigger picture
Shale field finds have revived the U.S. oil and gas output after four decades of decline. The advent of new technologies, including horizontal drilling of well and hydraulic fracturing, is the main reason behind such huge discoveries. Anadarko, along with peers CarrizoOil & Gas (NYS: CRZO) and Noble Energy (NYS: NBL) , has been putting the latest technology to use in the Wattenberg fields. The company also holds leases in Wyoming where it is evaluating drilling prospects. These mean machines are expected to boost North American oil production and may even double it by 2025, although environmental concerns may shrink the projected expansion.
The discovery has boosted Anadarko's prospects by guarantying higher production and increased field life. The Wyoming field may also turn out to be a high reserve area.
Fool contributor Amitabha Chakraborty does not own shares of any of the companies mentioned in this article. 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.
At the time thisarticle was published