In hills outside Paris, tapping vast oil reserve presents risk but promises profit

The rolling hills to the east of Paris are known for their cash crops. Large quantities of vegetables and grain, champagne and brie have been produced here for centuries.

But as the world's thirst for petroleum sends industry searching for oil in increasingly unlikely locations, this bucolic region could soon become the stage for a fight that pits potentially huge economic benefits against fears of environmental destruction.

Oil industry estimates claim that there are between 50 billion and 200 billion barrels of oil trapped in shale rock more than a mile below the surface, in an 87,000-square-mile geological formation known as the Paris Basin. Now, in a first for Europe, oil companies are bringing technology from the United States, which fueled the natural-gas boom in the US over the past decade, to try to extract it.

If the projects succeed, they could move France one step closer to energy self-sufficiency – the country is also among the most aggressive developers of nuclear energy – and bring billions of dollars in profits for oil companies, thousands of jobs, and increased tax revenues for the French government.

But environmentalists worry they could also transform a largely agricultural region into vast fields of oil derricks that suck up billions of gallons of water normally used for irrigation and by individuals.

The region has produced small amounts of oil since the late 1950s. Production peaked in 1988, but dropped to its current level of about 10,000 barrels a day as oil prices declined. Interest picked up again about two years ago as oil companies adapted new technology, known as horizontal fracturing or hydraulic fracking, which was originally developed to extract gas from shale rock in the US.

How 'fracturing' works

Shale is as dense as hardened clay, and oil does not flow from it easily. Horizontal fracturing breaks up the rock by blasting water under high pressure into horizontally drilled wells, so the oil can be extracted.

The technique is widely used in the US to produce natural gas from shale. The first success with shale oil was in the Bakken formation in the Williston Basin, stretching across North Dakota into southern Saskatchewan. Companies there have used the technique to ramp up oil production from 80 thousand barrels a day in 2004 to 300 thousand barrels a day this year. The rock formations in the Paris Basin have a similar structure and history, so oil companies hope the technology will work in France, as well. Ten companies are competing for permits that would give them the right to explore and eventually develop the fields, in what is the toughest competition for resources France has seen in decades.

"We are seeing an incredible amount of interest. Trying to sort out all the permits is like dealing with kids in the schoolyard," says Charles Lamiraux, head of oil exploration for the French energy ministry. "I think if they are fighting this hard it's because they think there is an important future there."

Vermilion Energy, already the biggest producer of oil from conventional fields in France, was the first to tap into the shale rock. Earlier this year, it used two conventional vertical wells in a farmer's field to conduct tests on the shale layer. Vermilion's vice president of European operations, Peter Sider, says the results were "encouraging."

"We now know we can produce oil from the shales because we are doing it every day," he says.

First, five years of exploration

Mr. Sider says Vermilion plans to spend $160 million on research and development over the next five years. Another company, Toreador Resources, plans to invest up to $120 million next year to drill six wells and assess their potential.

The projects are in their infancy, and Craig McKenzie, president and chief executive officer of Toreador, says his company expects to spend up to five years exploring the area and figuring out if the technology that has worked in the US will succeed in France. He says he can't say how much oil might be recovered from the Paris region because even identical rocks in similar formations do not always react in the same way. The Institut Français du Petrol estimates that 5 to 10 percent at most may be recovered. Vermilion and Toreador say it could be just a half to 1 percent.

Mr. Lamiraux, the energy ministry official, says that in the most optimistic case, France would go from producing just 1 percent of its petroleum needs to 5 percent.

"That would be very important for us. It would be oil that is made in France, that we don't have to buy from a developing country and it would improve our trade balance. And the fact it doesn't have to be transported from a long distance would also benefit the environment," he says.

Revenue, but environmental costs?

Tax revenues for municipalities and the French government, as well as income generated from oil industry-related services would "at least double," Lamiraux added. But he says possible environmental damage to some of France's richest agricultural land is also an "essential concern."

Horizontal fracturing involves pumping large amounts of water into the ground at high pressure to break up shale and release oil. On average, each well uses as much water as 100,000 people in France use in a day. The process requires from 10 to 20 times as many wells to extract the same amount of oil as from a conventionally drilled well. Often, the wells are closely spaced – as little as 300 feet apart.

Mr. McKenzie says most of the water could be reused for subsequent wells and that oil companies are working to limit the effect on the environment.

But Marie-Paul Duflot, president of one of the largest environmental groups in the Seine and Marne region, which covers the Paris Basin, says she is concerned large-scale shale oil development in the area would "transform our countryside into a field of derricks. We don't want that."

Ms. Duflot, who says she was shocked to learn that oil companies have such ambitious plans for the region, says she is also worried about possible pollution and water shortages.

Lamiraux says environmental concerns may mean that shale oil development proceeds at a slower pace than it has in North America and may even reduce the amount of oil that can be extracted. But as long as oil prices continue to rise, companies say they expect the project to pay off.

"This is a big pie," says Paul Beique, Vermilion's vice president of capital markets. "If the pie is big enough, even one piece is OK."