If 2008 was the Year of the Shales, 2011 is shaping up to be the Year of Liquids-Rich Plays–and there are still four months to go.
A major recurring theme in second-quarter conference calls was oil companies’ news of positions amassed or initial test wells drilled in new shale and unconventional fields containing oil and natural gas liquids.
Plays such as the Tuscaloosa Marine Shale, Mississippi Lime, Lower Smackover/Brown Dense and Utica shales–both in Ohio and to the west in Michigan–are lining up to be the emerging fields of 2012 and 2013, analysts said.
“We’ll see a movement in some of these plays and it’s not going to slow down–if anything, it will be a pretty tight market for services, fracturing crews and pipeline access,” Michael Bodino, head of energy research for Global Hunter Securities, said.
Arguably, the Utica Shale was the showpiece of the quarter, particularly because its cachet resembles that of Northwest Louisiana’s giant Haynesville Shale, which took Wall Street by storm when Chesapeake Energy trumpeted it in March 2008.
Chesapeake again took the lead in showcasing the Utica late last month, relating the news that the play economically “looks similar, but is likely superior to the Eagle Ford Shale in South Texas…because of the quality of the rock and location of the asset” near eastern US population centers, CEO Aubrey McClendon said.
Like the Eagle Ford, which stands out as one of the US’ most sizzling shale plays at present, the Utica has oil and “dry” natural gas and “wet gas” (gas liquids) windows, he said.
Jeff Ventura, chief operating officer at Range Resources, which pioneered the Marcellus Shale in Pennsylvania, said his company already has drilled two Utica wells. At least on its acreage, Utica is at the bottom of a pancake stack of three play zones, with the Upper Devonian Shale on top and the Marcellus in the middle. The Upper Devonian shales contain about as much gas in place as the Marcellus zone, Ventura said, adding that the Marcellus gas field has been called one of the US’ largest.
Both Range and Chesapeake also have scored success in Northern Oklahoma’s Mississippi Lime play. “In the past year it has become more clear that we have a major play on our hands,” said McClendon, with Chesapeake holding 1.1 million acres there, running six rigs, aiming for 10 rigs by year-end and 30 to 40 by end-2014 or 2015.
Range’s Ventura suggested the play, found at relatively shallow depths of 5,000-6,000 feet, is also highly profitable; it boasts a 100% rate of return at $100/b oil, and he added that even at $90/b it yields a roughly 80% return. Range, which has completed seven horizontal wells, sees its main near-term activity there as nailing the optimal lateral length and well spacing.
Ventura said liquids make up 70% of a well’s recoverable hydrocarbons. McClendon estimated 415,000 barrels of oil equivalent per well, at an average finding cost to date of roughly $11/b, which he called “very, very attractive results.”
Meanwhile, in its late July conference call, Southwestern Energy CEO Steven Mueller said his company has acquired 460,000 net acres in an unconventional horizontal play targeting the Lower Smackover Brown Dense formation.
“This happens to be almost the exact same number of acres we had when we announced the Fayetteville Shale play back in August 2004,” Mueller said. That news kicked off an industry rush to that gas play, Mueller said.
But having reviewed the results of more than 70 wells that penetrated the Brown Dense zone, “we currently have more data about [it] than we had on the Fayetteville Shale when it was announced,” he said.
Mueller said the Brown Dense is an oil reservoir in Northern Louisiana and Southern Arkansas, at 8,000-11,000 foot depths and below the Haynesville Shale which is also a gas play. Brown Dense is “extensive over a large area and ranges in thickness from 300 to 530 feet,” he said.
Southwestern plans its first Smackover/Brown Dense well in Columbia County Arkansas, before the end of September, with a second well later in the year in Claiborne Parish, Louisiana.
In addition, Goodrich Petroleum in early August said it had begun drilling the Buda Lime, beneath the Eagle Ford. The small company averaged a respectable 900 boe/d oil from those wells, against 800 boe/d from its 11 Eagle Ford wells so far.
Rob Turnham, Goodrich chief operating officer, also touted the Tuscaloosa Marine Shale, along the horizontal Mississippi-Louisiana border, where both Encana and Devon Energy have large positions and are drilling wells. Tuscaloosa “has a lot of similarities to the Eagle Ford–similar permeability and porosity” of the rocks, he said. Goodrich will begin drilling in early 2012.
He said nine older wells in the play have flowed oil but “none of them have been properly stimulated.” If the vertical wells were to be taken horizontally several thousand feet, fractured with current technology, and properly stimulated, “we’re very optimistic,” said Turnham.–Starr Spencer in Houston