As Matt Badiali, geologist and editor of the Stansberry Resource Report, explains, it has only been in the last few decades  we have  learned how to release the potential of the massive oil and gas reservoirs in the U.S. Now we are learning how to tell if a shale project will be profitable. In this Energy Report article, he shares three names he is watching closely.

Geologist Matt Badiali compares a conventional oil field to a glass of iced tea. The ice cubes are the rocks, the tea is the oil and the cup is the reservoir (just imagine the whole thing upside down, so the cup is on top). The cup is a trap where oil and gas accumulate after migrating out of the source rocks.

A shale resource is not like that. It’s the source of the oil. It is rock formed when much of Canada and the central U.S. was an oxygen-starved ocean bottom. These rocks are filled with carbon and if they are squeezed and heated in just the right way, the carbon becomes oil and gas.

However, the rocks don’t produce oil and gas in the traditional way. You can’t just drill into them and expect the well to gush, like a conventional field. In the late 1990s, George Mitchell, founder of Mitchell Energy & Development Corp., noticed something funny. When he drilled through the Barnett Shale, near Dallas, Texas, the hydrocarbon meter (oil detector) would light up as he cut through the shale layers. He envisioned shooting a water gun with grains of sand sideways into these thin layers to prop the sheets of rock open and allow the oil to escape.

He did it a few times and it worked. This was revolutionary. Everyone was talking about peak oil and predicting a shortage. George Mitchell ignored the conventional wisdom and unlocked a treasure trove of oil. Even after the geologists proved that it worked, however, the traditionalists pointed to all sorts of problems and said it would never last. They were wrong.

“The fact is that the amount of oil trapped in the source rock is enormous. In the history of the oil industry, we have only tapped a fraction of what is there,” Badiali says.