For years, Shell E&P has been conducting a pilot shale oil extraction project in Colorado's Piceance Basin. And they've been rather quiet about it.

Shell's not making a big deal out of this one because it might not be a big deal. But then again, it might.
Most thermal shale oil extraction methods tested around the world - including Colorado - have been based on strip-mining raw shale and using superheated water to extract the oil. This process uses huge amounts of water and leaves a big footprint that includes the strip mine itself, as well as huge quantities of mine tailings and other unsavory waste products.
Shell, however, is testing an electrical heating tool that's lowered into a conventional vertical well drilled into the shale. Apparently, the proprietary heater warms the shale in situ over a long period of time until the hydrocarbons entrained in the shale (kerogens) are converted into oil and gas. Once precipitated, the oil and gas are brought to the surface in much the same way as conventional hydrocarbons. With such a setup, the footprint is no more than you'd find in any conventional oil or gas field operation, many of which already dot the Piceance Basin landscape and are an accepted practice.
Since it still considers the project as grassroots fact-finding, Shell isn't saying much about the Mahogany Research Project, as it's called. The company expects the research to continue for at least the next 5 years, and for several reasons, including competitive ones, they aren't expected to say much else about it.
However, if the pilot proves the process to be economically viable, it could set the stage for a commercial-size project. Considering that the Piceance Basin oil shales - which extend throughout northwestern Colorado into Utah and Wyoming - hold an estimated 300 billion bbl of oil, it's not unreasonable to consider that full-scale development could lead to colossal changes in US oil supply. But to be fair, Shell hasn't even hinted at anything like that. In fact, whenever expectations start to form, the company makes sure to reiterate its position: it's only research.
The pilot is sited on Shell-owned land in Rio Blanco County, about 200 miles (322 km) west of Denver near the towns of Rangely, Rifle and Meeker. The specific parcel of land on which the pilot is being conducted (involving three 1-acre tracts) totals about 20,000 acres, but Shell owns a similar acreage block in neighboring Garfield County. Other oil companies, including ChevronTexaco, hold large blocks in the oil shale area as well.
Shell began construction of the pilot's field facilities in April 2000 and completed them later that year. The in situ heating, which began in November 2000, will continue indefinitely as the company continues to evaluate results.
Meanwhile, Shell is conducting thorough environmental studies on topics ranging from ground and surface water impact to the potential effects of widespread shale development on wildlife, including the deer, elk and wild horses that populate the area. Also being conducted, among others, are baseline studies of the potential societal and economic impacts on the area that commercial shale oil production operations could create.
Muffling the boom effect
There's a method behind Shell's slow and quiet pace at Mahogany. Historically, the road to US oil shale development - which started during World War I - has been littered with relatively short booms followed by long-term busts, caused mainly by changes in oil demand. For decades, using variations on the mining and hot water extraction method, various companies have nobly attempted to make shale oil a paying proposition. But its per-barrel cost has always been high, demonstrating a "cork in the water" effect; in other words, even when oil prices climb, shale oil costs have historically been higher. On the other hand, when oil prices fall, so does oil companies' enthusiasm about unconventional oil sources, particularly oil shale.
Locally, the booms have been sweet, but the busts have been disastrous. Twenty years ago last month - at the end of the last great oil boom - crude oil prices fell precipitously from their US $40/bbl high earlier in the year. That was enough to cause Exxon, which for several years had operated its multibillion-dollar Colony oil shale project in nearby Parachute, Colo., to abruptly shut down the whole shebang and put up a "for sale" sign. Other companies involved in various phases of shale oil production also put their projects on hold. The upshot was that the companies wrote off billions of dollars worth of land and equipment.
But there was a bitter human effect as well. An estimated 10,000 area jobs were lost almost overnight. To this day, area residents recall May 2, 1982 - the day Exxon shut down the Colony project, signaling the end of that shale oil boom - as Black Sunday. Local real estate values plummeted.
Shell apparently is committed to preventing a repeat of that situation, particularly if it were to launch a commercial project down the line. A total lack of hype and company dialogue about the project with federal, state and local officials has kept area residents informed in a general way. And though the area has long since recovered from Black Sunday, Shell's measured approach is not directly affecting real estate values or attracting would-be workers. The current work force involves only about 20 Shell employees and 30 contract workers.
However, according to recent area newspaper reports, because there's no open-pit mine or mine tailings and Shell's process uses only one-tenth of the water needed for retorting operations, the project is attractive to government and citizens alike.
In situ extraction
Rich Hansen, Shell's community relations manager in Houston, Texas, said that because the in situ heating process uses conventionally drilled, vertical wells, far more oil and gas could be recovered from a given shale area since it can be produced from far greater depths than can be reached with surface mining technology.
Additionally, though the company has never mentioned it in public, the work in Colorado conceivably could result in expansion of Shell's shale oil research into other areas of the world. Company units in Jordan and western Canada, to name two, one day could become interested in testing the downhole heating method on oil shale.

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