Daily Archives: August 31, 2011

Louisiana official reports activity on third possible shale play

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WASHINGTON, DC, Aug. 31

By Nick Snow
OGJ Washington Editor

Oil and natural gas producers have begun work on developing a third shale play in Louisiana, giving the state one proved and producing formation and two that are being watched closely, according to Scott Angelle, secretary of Louisiana’s Department of Natural Resources.

The new area in northern Louisiana and southern Arkansas is referred to as the “Brown Dense” or “Lower Smackover” and is believed to be a limestone layer at the base of the Smackover formation, a long-time source of traditionally producer oil and gas in northern Louisiana, Angelle said Aug. 31.

He said the Brown Dense joins the Tuscaloosa Marine shale as the second half of a Louisiana dense-rock play duo believed to have production potential similar to Louisiana’s Haynesville shale and the Barnett and Eagle Ford shales in Texas. The Tuscaloosa Marine shale is believed to underlie much of central Louisiana, with exploration under way in areas from Vernon Parish to East Feliciana Parish, Angelle said.

He said initial development of the Brown Dense—generally believed to underlie northern Claiborne, Union, and Morehouse parishes—has barely begun. Southwestern Energy Co., Houston, has begun to drill its first well in the Brown Dense in Arkansas, and has announced it will seek a permit to drill a second in Claiborne Paris by yearend 2011, Angelle said (OGJ Online, July 29, 2011).

In Southwestern’s second-quarter earnings teleconference on July 29, the company’s Pres. and Chief Exeuctive officer Steve Mueller said the company had, to date, invested $150 million, or $326/acre, on undeveloped Brown Dense acreage, with an 82% average net revenue interest. “We’ll begin by targeting the higher gravity oil window under our lease, which we believe could be 45-55° gravity range,” he said.

The right mix

Southwestern has reviewed the Brown Dense extensively across the region and has indications that it has the right mix of reservoir depth, thickness, porosity, matrix permeability, ceiling formations, thermal maturity, and oil characteristics, Mueller stated.

The area’s porosity is 3-10% and it has an anticipated 0.62 psi pressure gradient, making it overpressured, he said.

“We have assembled log data on 1,145 wells covering five states to evaluate the Brown Dense and acquired over 6,000 miles of 2D seismic and have gathered and analyzed rock data from cores and cuttings from 70 wells that penetrated the Brown Dense zone,” Mueller said. “At this point, we currently have more data about the Brown Dense than we had on the Fayetteville shale when it was announced.”

He said Southwestern hopes to spud its first Brown shale well in Arkansas during the third quarter and the second, in Louisiana’s Claiborne Parish with a planned vertical depth around 8,900 ft and a 3,500 ft planned horizontal lateral, later this year.

“We plan to drill up to 10 wells in 2012 as we continue to test this concept,” said Mueller. “This formation has sourced several large conventional oil and gas fields and our hope is to use horizontal drilling technology to unlock at least as much potential. Positive test results could significantly increase our activity in this play over the next several years.”

Devon’s activities

Angelle said Devon Energy Corp., Oklahoma City, also has acquired 40,000 acres in the Brown Dense and plans to drill a test well there. The independent has received a permit for a well targeting the deeper Smackover in Morehouse Parish, the Louisiana official said.

He said that Devon also is active in the Tuscaloosa Marine shale, with 250,000 acres leased, and plans to drill two wells. About a half dozen wells targeting the Tuscaloosa Marine—long thought to contain substantial reserves, but previously considered uneconomical—are currently in the process of being drilled or securing permits, Angelle said.

The increased activity will create more water demand for hydraulic fracturing, noted another Louisiana official, State Conservation Commissioner Jim Welsh. The decline in water use in the Haynesville shale play, however, may more than offset the increase in water use in the Tuscaloosa Marine and Brown Dense, at least in their early stages.

Producers drilling in the Brown Dense formation have informed the state’s conservation office that they intend to use surface and recycled water for their overall project needs, in conformance with guidelines issued for nearby areas experiencing stressed groundwater conditions, he said.

The anticipated Brown Dense development area underlies the Sparta Aquifer, where water levels have recently improved following combined state and local efforts to manage groundwater use, Welsh said. “We are still discouraging new high-volume users from using groundwater in that area, and are giving guidance for alternative sources for water,” he added.

Original Article

Finke: Profit is not a dirty word

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By Ron Finke

Independence, MO —Why do we allow companies to have any profit at all? If a company makes a profit, doesn’t that mean that it charged more than it should have for its products?

This fiscal year ending Sept. 30, our federal government will pay out $2.2 trillion just for safety net and interest expenses, 97 percent of its total intake. The government needs money so shouldn’t we just raise taxes on companies that have excess profits?

Speaking of excess profits, everyone knows that gasoline prices are too high. Exxon Mobil had revenue of $424 billion in the past year and almost $38 billion was left over after interest, taxes and depreciation. What good is that doing society?

Exxon Mobil pays $9.1 billions of that net profit to its shareholders as a dividend, $1.88 per year per share, amounting to 24 percent. Almost half of its shareholders are institutions like pension plans, universities and other foundations. That might be doing some good.

In 2009 , the oil company paid $7.7 billion in U.S. taxes but no federal income tax. Why? It paid more than $15 billion of income tax to other countries where it gets its oil. Worldwide Exxon paid $78.6 billion in total taxes before we see any leftover profit. Nigeria makes out pretty well since it charges up to 85 percent of profit from its Exxon Mobil oil production.

If Exxon could pump more oil in the U.S., our government would get more income and other taxes. Since oil pumped and sold is gone, the behemoth looks for new oil everywhere. A few years ago, it and Norwegian Statoil began exploring in a new, deeper area of the Gulf of Mexico. It can only do that after paying the U.S. government for permits. The Department of the Interior now claims Exxon Mobil abandoned three of its five permits when it requested a short suspension of activity to upgrade its equipment for new safety technology and was a little slow in signing new contracts with Chevron as a new partner.

Oh, did I mention that the finding is estimated to be a billion or more barrels of oil? Or that the exploration had already cost $300 million (that came from profit leftover from previous years and sales)? Exxon is ready to start but our government has stopped Gulf drilling by regulation. The rigs have begun to be moved to Brazil and Africa.

There is a new steel plant in Youngstown, Ohio, already producing drill pipe for our domestic production. Perhaps it could make steel for something else, but I don’t know what.

Exxon Mobil will begin paying about $10 billion in royalties and taxes to the federal government if and when it can get started on the Julia field. In the meantime, it has sued the government over its alleged snatching of the three permits. That should be successful, but lawsuits are anything but cheap. So there goes more of that leftover profit.

I wonder how smaller companies fare in fights with the government. Our U.S. government has lots of lawyers and all the time in the world. Does this type of thing have anything to do with businesses stockpiling money instead of pushing ahead, taking initiative and hiring new workers?

Original Article

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