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$20 trillion oil discovery

According to two independent expert reports, South Australia could be sitting on oil potentially worth more than $20 trillion** – yes that’s trillion.

Brisbane based Linc Energy (ASX: LNC) has announced that independent studies show a major shale oil source in the Arckaringa Basin in the far north of South Australia. US consultants, Gustavson, suggest that the underlying rock formations are rich in oil and gas, and could contain up to 233 billion barrels of oil. A second estimate from DeGolyer and MacNaughton puts the potential at around 103 billion barrels of oil equivalent.

The differences in the two estimates show how difficult it is to estimate oil and gas reserves with any certainty. Linc’s chief executive, Peter Bond has said that even if only the best spots with the highest possibilities are considered, it would still result in a substantial find of around 3.5 billion barrels. He added that the discovery could be bigger than the Cooper Basin and Bass Strait combined.

Linc is now trying to find a partner to spend up to $300 million to develop the Arckaringa Basin assets, with the company keen to hold onto at least half of the project. The company’s shares have more than tripled since November, and are up more than 24% in trading so far today.

Whether this is pure hype or a company transforming discovery remains to be seen. There has been an explosion in interest in shale oil and gas globally, as companies seek to find resources to replace dwindling supplies of conventional oil. The US is predicted to become self-sufficient for its energy needs thanks to new shale oil and gas finds.

Australian companies have been drilling feverishly across outback Australia, with Santos Limited (ASX: STO) and Beach Energy Limited (ASX: BPT) drilling in the Cooper Basin, while Buru Energy Limited (ASX: BRU) holds around 17 million acres in the Canning Basin in Western Australia, and some significant oil and gas finds.

The Foolish bottom line

Shale oil and gas looks set to revolutionise the world’s energy markets, with some experts suggesting reliance on middle-eastern oil is falling rapidly. Much like the gold rushes of history, some of the best investments may come from the “picks and shovels” suppliers, rather than the actual oil producers.

This recent discovery, if not hype, could see Australia become self-sufficient in oil too.

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More reading

The Motley Fool’s purpose is to help the world invest, better.   Click here now   for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

** Updated 24th Jan 2013. Linc has come out today and said that it doesn’t believe the discovery is worth that much.

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