ConocoPhillips eyes Austin Chalk results in Louisiana by year-end: CEO

ConocoPhillips eyes Austin Chalk results in Louisiana by year-end: CEO

Houston — Two wells drilled in Chalk play; a third is underway

Says 'optimistic' about potential, although in early stages

Deepwater Gulf of Mexico not competitive for company now

ConocoPhillips has drilled two wells in the Austin Chalk formation of central Louisiana, and may be able to judge the potential of the play by the end of the year, the company said Tuesday.

The wells are sited on the company's position in the emerging play, one where peers Marathon Oil and EOG Resources also have acreage.

And while so far ConocoPhillips likes what it sees, the company needs to finish up an initial four-well program before any releasing results and providing more information on the play's potential, company CEO Ryan Lance said at a press conference following the company's annual shareholder meeting.

"We probably won't have results until later in the year," he said, adding "we're still optimistic" about the play.

Completions are being run on the first well and ConocoPhillips is starting to flow test it, Lance said, while the second well is drilled but not completed. A third well is in process of being drilled.

'LOT OF UNCERTAINTY' IN EMERGING PLAYS

Lance cautioned the Austin Chalk has "a lot of uncertainty," as is the case with any new play.

"These unconventional [plays] can quickly fail fast and then you move onto something else," he said. "That's what's different from deepwater, for instance, which can take a year or more to figure out what you have."

The Austin Chalk formation, found in a wave-shaped span from South Texas through East Texas and into Louisiana, has been produced conventionally for decades.

But as the shale boom in the last decade has taken hold, companies are heading back into old areas and drilling and completing the wells horizontally.

ConocoPhillips took a position in the Austin Chalk early in 2018, saying at the time it had acquired about 211,000 net acres in the play.

Also, the company, which exited deepwater exploration in the Gulf of Mexico, might consider a return to that arena if all-in costs drop below current levels, but so far it is not competitive with the company's current portfolio, Lance said.

ConocoPhillips, which in the last few years has lowered its cost of capital below $30/b, has done much work to get itself in a position where it can compete in the current world of volatile oil prices.

CONOCOPHILLIPS STILL OPERATES A US GULF FIELD

The company was a Gulf of Mexico operator, but exited exploration there by 2017. The company still has 14,000 b/d of oil equivalent production from that arena, where it operates the deepwater Magnolia field and is a partner in two others - Shell's Ursa/Princess and Anadarko Petroleum's K2. Of its Gulf of Mexico production, 11,000 b/d is oil.

In recent years, the handful of large explorers still operating in the US Gulf - notably Chevron, BP, Shell and Equinor, formerly known as Statoil - have pared down costs through technology and efficiencies. They and smaller competitors say they are receiving good returns on investments in their operating spheres.

Still, ConocoPhillips considers the all-in price tag of that arena uncompetitive with its $30/b cost of supply, Lance said.

"Some areas are getting low enough to be competitive in the portfolio," he said. "But we still don't see the reductions and technology yet keeping up with the cost of supply inherent in our portfolio today."

"We continue to watch ... improvements and technology," he said, adding that development costs may be low, but "when you wrap up all the costs to acquire acreage, do the exploration, [general and administrative] appraisal and development ... I'd argue it's not competitive."

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Replies to This Discussion

Permalink Reply by Hydrocarbonite on May 17, 2019 at 2:31
Permalink Reply by Skip Peel - Mineral Consultant on May 17, 2019 at 2:40

Good job.  Yes, well cost is a key metric for the commercial viability of the LA AC.  And one we do not highlight often enough.  If this was a "development" well as opposed to an "exploration" well with requirements for extra costs related to science, the play would be in trouble.  If we post the well cost for the follow up wells, we will eventually get a feel for the average development well cost.  Then the site experts can compare the published EURs to the well cost and tell us if we have a "Play".

Permalink Reply by Hydrocarbonite on May 17, 2019 at 2:48

Thx Skip, I’m learning my way around Sonris!  So much info available if click on well serial number in upper left hand corner when looking at well profile!! Waiting patiently on Southwind to get back in play next month on the Crowel site in Rapides.  

Permalink Reply by Skip Peel - Mineral Consultant on May 17, 2019 at 2:55

The SONRIS staff is continually trying to improve the database.  They only have control over some much however.  You're right that the link to the well reports in the Document Access portion of the database by clicking the blue serial number in the Well File is a great shortcut to a lot more detailed information that the state collects.

That members become more proficient at using SONRIS is a main reason I participate here.  Knowledge is power and mineral owners/managers need all they can get.

Permalink Reply by Rock Man on May 20, 2019 at 5:20

Some interesting numbers here - I could go on ad nauseum about many of the items listed.

But a few jump out:

  • $1.4+ MM for site construction? What was this? - a multi mile access road going into the deep woods?
  • $2.5 MM for production facility? What are they planning to produce with this large a facility? Or is this a multi well facility?
  • ZERO for stimulation - that makes no sense
  • $374 M for mud logging - a smaller item but a good mudlogger only costs $10-15,000 per day / I wonder if this includes a bunch of rock analysis work while drilling (e.g. TOC, mineralogy, etc).

Interesting but a lot of questions

This pre-production facility number needs to be in the $6 to $8 Million range to be even close to this being a viable play (and then the reserves need to be good enough even at those numbers)

Permalink Reply by Rock Man on May 20, 2019 at 8:06

This says a lot - LONG access road plus huge pad sufficient to handle frac operations.

Plus I wonder what sort of levee / berm is around this location to prevent high water incursion during certain times of the year?????????????

I wonder if the production facilities are off location and centralized for multiple wells??????? That may explain the $2.5 MM for that item

Thanks for posting this

Permalink Reply by Rock Man on May 20, 2019 at 8:26

Yep - the Cadillac costs of a major. Again - great info.

Wonder how far is the closest pipeline and if that is included in the $2.5 MM for production facilities??

Permalink Reply by casingpoint on May 18, 2019 at 4:39

That is a newer well cost statement than I am familiar with. Most notably well costs are given in itemized detail, as opposed to lump sum on the previous form. 

Permalink Reply by Skip Peel - Mineral Consultant on May 18, 2019 at 5:13

This is on the state's well cost reporting form.  Louisiana has a severance tax exemption for horizontal and "deep" wells. The tax is not paid for the first 24 months of production or until the well cost if recovered, if earlier.

Permalink Reply by Lisa Melder-Johnson on May 21, 2019 at 3:16

Is there a reason as to why they are more interested in the AC West & East Feliciana parish area & not the Rapides, Avoyelles & Vernon parish areas?   Could it be due to location to gulf, pipelines & refineries.

Permalink Reply by john goodday on May 21, 2019 at 4:52

How does one find the State's well cost reporting form in Sonris?

Permalink Reply by Skip Peel - Mineral Consultant on May 21, 2019 at 4:59

In the SONRIS Data Access Well File, click on the serial number in blue.  That will connect you to the Document Access portion of the database with a list of all the state reports on file for that well.  Be advised that it can take months before the well cost form shows up.

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