From The Editor-In-Chief

By the time Cornell University, the EPA and Congress get through, hydraulic fracturing may be a rarified practice that takes as long to permit as a deepwater well in the Gulf or a tight-gas well on some high plateau in Utah. That could cool down today's hot oil and gas plays.

But for now, horizontal drilling and the frac revolution are boosting plays everywhere.

This month each feature article zooms in on crude oil: the plays, the economics, investments, enhanced oil recovery methods. Rarely do we publish a themed issue such as this one, but with oil topping $100 and many older oil plays being jump-started as a result, we think it is appropriate.

But one reason oil plays are so hot has nothing to do with oil prices. It's all about the industry's newfound ability to apply to oily formations the horizontal drilling and fracing technologies learned in the gas shales. EURs (estimated ultimate recoveries) for most plays have steadily improved over the past three or four years, thanks to better techniques.

These lessons began quietly, 30 years ago this year, when a persistent George Mitchell successfully drilled his first Barnett shale well in North Texas. Little did he suspect that this would lead to a revolution that is now drawing international dollars to U.S. basins—and U.S. dollars to foreign basins.

A generation later, we see a greatly revised picture of producible U.S. and Canadian resources, and the tide is reaching the rest of the world. Companies are drilling shale-gas test wells, often verticals, to take core samples, in England, Poland, Germany, Brazil, Argentina, China and India, among other places, according to Hart Energy Research's just-published "Global Shale Gas Study."

Last year, U.S. oil production actually rose for the first time in decades. That's thanks to the boom in the Permian Basin, and in the hot Bakken play in a revived Williston Basin, site of our first cover story, in August 1981. (We plan to revisit the Williston this coming August when we celebrate our 30th anniversary.)

Independents are applying the techniques that made gas shales a success to traditional formations such as the Smackover in northern Louisiana, and the Cleveland sand and Mississippi Lime in Oklahoma and Kansas. More development is on the way.

High oil prices have turned Permian oil assets from trash to treasure, said Tim Dunn, chairman and chief executive of CrownQuest Operating LLC. Speaking at the 17th annual Executive Oil Conference in Midland last month, he cited the Wolfberry, Wolffork and Wolfbone plays—all revived by the new drilling and completion techniques.

"Wolfthang, you make my heart sing, you make everything groovy," he said. Readers of a certain age will recognize this reference to the 1964 Top 40 hit by the Trogs.

In 2002, CrownQuest bought a group of "cast-off" Permian oil properties no one wanted because they were low-margin, low-rate wells, and everyone was rushing into natural gas. Since then Dunn has tripled oil production on those assets. Now, he is selling some of those properties for six times what he bought them for. "The value of a three-barrel-a-day well has increased by a factor of 12. That demonstrates the 'love gas-hate oil' era is over.

"For the first time in my career, the Permian is no longer fat and ugly. We're pretty, now."

Higher margins in oil are enticing many to shift their focus to oil plays. Newfield Exploration Co.'s year-end reserve report showed this. Its increase in PV-10 value for 2010 was caused by the rise in oil prices and more oil projects. But on the flip side, it reclassified 315 billion cubic feet of proved gas reserves to probables, because it was not going to drill them within five years, after all.

EOG Resources is another gas champion changing its tune, thanks to its operations in the Barnett oil window, Cleveland sand and Niobrara, to name a few. In March it raised $1.4 billion in an equity offering to drill these up.

"Color us surprised," said the analysts at Tudor, Pickering, Holt & Co. Securities. "Transitions to oil are hard, so hard that EOG issues its first equity offering in 11 years. Is the (gas) asset market softening?"

The damper on this party is the Cornell University study released in April. It claims fracing and gas-production facilities emit hundreds of times more CO2 than once believed, and that therefore, natural gas is not as environmentally friendly as the gas industry claims it to be.

I like what Dunn said in Midland. To counter environmental concerns, people in the oil industry should change their message, he said. "They should say, 'We are natural and organic. We recycle sand, water and guar (an ingredient in fracing, chewing gum and ice cream), to develop organic, naturally occurring oil and gas—not this artificial stuff like ethanol."