Everyone likes cake — thick layers of hot-out-of-the-oven goodness topped with rich butter cream icing. It’s enough to make to even the most hardened curmudgeon smile. And in the case of the energy industry, North America’s shale rock is like a big, sweet piece of seven-layer black forest cake.
The beauty of North America’s geology is how the various dense layers of rock are stacked upon each other like a sheet cake. This stacking provides plenty of pockets of rich natural gas and shale oil to tap using advanced drilling techniques.
Two delicious layers have already been discovered: the Marcellus and Utica shales in Pennsylvania, Ohio and West Virginia. Both have yielded vast hydrocarbon deposits and turned firms like Range Resources (RRC) into household names.
However, for investors seeking the next big thing in shale, focusing on the icing on the top these respective formations could prove extremely profitable.
Meet the Devonian
Originally drilled in the late seventies, the Upper Devonian shale is once again receiving plenty of attention from the E&P industry as hydraulic fracturing breathes new life into old energy stomping grounds. The swath of shale rock actually sits above both the Utica and Marcellus across the states of Pennsylvania and West Virginia.
That’s a critical factor in why the Devonian could be a huge monster play over the long haul.
First, the shale field is a mixture of sandstone layers only about a few hundred feet above the more famous Marcellus — which is technically called the Lower Devonian. That enables the Upper Devonian to act like a catcher’s mitt for all the gas that has drifted up through the Marcellus over the years. The two shale layers are very similar and could offer a comparable mix of dry gas and natural gas liquids.
However, the shallower Devonian could be a bigger draw than its more prolific twin.
Being the top layer of our shale cake means that the kinds of pressures that formed the Upper Devonian weren’t as great as the lower Marcellus and Utica. Greater pressure along with higher temperatures can actually “cook out” all the oil and gas located in a deeper rock formation. That’s important because shallower rock has a better chance of being more “liquids-rich.”
Currently, demand for NGLs is rising fast because the byproducts are being used in a host of industrial applications as a feedstock. These natural gas liquids are also coveted by producers because their prices are tied to oil rather than dry gas.
Then there is its lower production costs to consider.