Maintenance of a stable wellbore is of primary importance during the drilling of oil and gas wells, and it can be troublesome. Porosity and permeability are essential shale rock properties necessary for stress analysis as related to wellbore stability. Empirical relationships that correlate porosity and permeability of shales have been developed based on the effective stress concept. A series of compaction and permeability tests were performed on four shale samples. A small-scale laboratory pressure vessel that includes an innovative testing procedure under simulated downhole conditions was used to determine the effects of confining pressure, pore pressure, temperature, and fluid types on the porosity and permeability of the shales tested. Compaction tests were conducted with de-ionized water under various confining pressures, constant pore pressure, and temperature. The permeability tests were conducted with de-ionized water and nitrogen as the test fluids. Tests were performed by varying the confining pressure, but under steady state conditions and constant temperature. The results of the laboratory tests were used to develop empirical correlations between permeability and porosity for the various shales. The empirical equations were validated with theoretical model equations. Results further showed that porosity and permeability are not constant but are functions of confining and pore pressures. This study proved that porosity and permeability are not constant and contrary to the common practice, they are functions of the confining and formation pressures. Therefore good reservoir and wellbore stability model must consider these effects during well development programs.