Royal Dutch Shale

Christopher Swann comments that Royal Dutch Shell shareholders should not expect a quick return from the $4.7 billion purchase of East Resources, given present gas prices.

However, the travails facing US deepwater drilling underscore the difficulty Big Oil faces in replacing energy reserves, and perhaps explains the motivation of Shell and others including ExxonMobil and Total SA, who have placed big bets on shale gas.

The demand for secure shale gas resources is costly; but there is no shortage of rival bidders for gas-producing assets writes Swann, for Reuters BreakingViews.

The $4,500 per acre that Shell is paying for East's territory in the Marcellus Shale is within the broad range of recent deals, but no steal. Just three years ago when shale technology was in its infancy the land could have been had for as little as $100 an acre, according to IHS Herold.

That said, Shell has bought quality goods. The Marcellus Shale in Pennsylvania and New York is on the doorstep of the huge East Coast energy market. Shell has also picked up land in the Eagle Ford Shale of Texas, seen as the future King Kong of US shale.

These recent deals reflect the continued appeal of shale and reflects the reality of the a poverty of options facing oil multi-nationals.  The BP incident has already resulted in  a moratorium on drilling permits for six months and suspension of planned exploration drilling off the coasts of Alaska and Virginia and in the Gulf of Mexico.

Swann comments that "shale gas is an investment for tortoises rather than hares."  But, with so many avenues to hydrocarbon bliss increasingly closing off, neither Shell nor its rivals can afford to be as picky as they might like.

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