How much is the shale oil windfall really worth?

(December 3, 2013 – EnergyWire) How much is the shale oil windfall really worth? SEC and analysts ask (By: Peter Behr)

The hydrocarbon production pouring in from the Eagle Ford Shale formation in South Texas is being hailed as a great new American crude oil bonanza. And it is, analysts agree -- except that a third or more of the production isn't crude oil at all.

It is a lighter cousin of crude called lease or field condensate, and its surprising abundance in the Eagle Ford play is straining the oil refining and transportation infrastructure there. It is also complicating investors' assessments of producers' oil reserves, analysts and industry executives say.

Accounting rules permit producers to lump crude and condensate together in reporting proved reserves, disclosing them publicly as a single number. But condensates aren't worth as much as crude along the U.S. Gulf Coast, where refineries are set up to run heavier oil. As the output of condensates increases, the price gap with crude is likely to widen.

Proved reserves of the two hydrocarbons taken together reached 29 billion barrels at the end of 2011, a 15 percent increase from the year before, the Energy Information Administration reported in August. It was the highest level of U.S. proved reserves since 1985.

But if condensate prices continue to fall away from crude, the high presence of condensates reported in the Eagle Ford crude production will tend to overstate the value of companies' estimates of proved reserves, notes Sandy Fielden, director of energy analytics at Houston-based RBN Energy.

"From an investor perspective, if you're investing in a region where there's much more condensate, it's in your interest to know that," Fielden said. "By not being transparent in how they define it at the surface, it makes the reserves more difficult to interpret."

There are other issues in valuing the shale gas and oil windfalls of an industry still in its infancy, experts say.