TMS related news.
In recent quarters, a handful of independent exploration and production (E&P) outfits have touted their acreage in the Tuscaloosa Marine Shale (TMS), a formation that stretches from Texas to Louisiana and Mississippi. The field is far from a new discovery; famed Mississippi wildcatter Alfred Moore spearheaded drilling in the TMS in the 1960s.
The play’s proximity to the Haynesville Shale should make it easier for producers to redirect drilling rigs from the out-of-favor dry-gas play and limits bottlenecks associated with a lack of midstream infrastructure. Despite boasting similar geologic characteristics to the Eagle Ford, the TMS is far from a slam dunk, which explains the low prices that early movers have paid to build an acreage position.
Goodrich Petroleum Corp (NYSE: GDP), for example, amassed about 74,000 acres, paying an average of $175 per acre. Meanwhile, Devon Energy Corp (NYSE: DVN) has accumulated 250,000 acres on the Louisiana-Mississippi border at an average cost of $180 per acre.
Thus far, early movers in the TSM have yet to report drilling results, though management teams have indicated that these tests have been encouraging. Devon Energy recently completed drilling, coring and logging its first vertical well in the play and plans to sink its first horizontal well later this year. Denbury Resources (NYSE: DNR) and its partner EnCana Corp (TSX: ECA, NYSE: ECA) are at a similar stage in their drilling program and plan to sink a horizontal well in September.
During EnCana’s conference call to discuss second-quarter results, Executive Vice-President Jeff Wojahn described its TMS assets as “a promising liquids-rich opportunity” based on “how the rock breaks, the hydrocarbon content and gas in place, and the like.” Management also pegged the drilling costs for its first horizontal well–a 12,000-feet deep vertical shaft with a 7,500-foot lateral segment–at about $8 million.
Meanwhile, Goodrich Petroleum’s CEO provided a bit more color on his outlook for the TSM during the Q-and-A portion of the firm’s Aug. 4 conference call:
We’re very comfortable today with what we see from a geologic standpoint of going ahead and drilling wells. In fact we don’t really even see much need, at least in most of our acreage, for pilot holes. There [are] sufficient amounts of historical vertical wells that have been drilled through the Tuscaloosa Marine Shale that we’re comfortable going out and drilling today. I would characterize at least in our view that the sole or the largest single risk to the play is just one of the economic performance versus well costs. We know the Tuscaloosa is present, sufficiently thick, thoroughly oil saturated. It’s just a little unproven in that no one has drilled yet a well that’s demonstrated in the EUR horizontally that would match up to costs. And that’s just [be]cause there haven’t been really many or any of them out there that have done that.
Drilling results in this frontier play could provide a meaningful upside catalyst for these E&P operators. At the same time, if the play proves uneconomic to produce or drilling results disappoint, the low cost of acreage provides a degree of downside protection.
Post any articles or information you believe to be relative to the TMS.
tell us how you really feel Skip! BTW, I completely agree.
Okay, dbob. LOL! There are a number of issues that are important and get obscured by the navel gazing of the frac fixated media.
At the top of my list is the damage caused to public roadways by energy industry traffic. I happens quite often in areas where the roads weren't the best to begin with and results in local governments, often cash strapped, subsidizing private development activity. The industry needs to be much more pro-active in covering the cost to repair and maintain the roads they damage.
The waste represented by the large scale, long term flaring of natural gas in numerous fields should be a significant concern. Make the industry meter and pay royalty to states and mineral owners and flaring will become less common and short term in duration.
Proper abandonment of orphan wells is not a priority. The fees collected in LA for example don't cover the cost to plug and abandon and clean up more than a handful of abandoned wells and surface locations that number in the thousands.
I could go on but supper is ready. :-)
Now, to go on.
Louisiana's regulation and inspection of oil and gas wells, including 'orphaned' wells, is inadequate, Legislative Auditor finds
The state Department of Natural Resources' Office of Conservation is doing an inadequate job of regulating and inspecting the state's oil and gas wells, and is not properly overseeing a growing number of "orphaned" wells abandoned by private operators, according to a report released Monday by Legislative Auditor Daryl Purpera.
The result is an increasing state financial burden for cleaning up environmental problems caused by improperly operated wells and for plugging wells that have been abandoned by oil and gas companies, the report concluded.
A PDF version of the report is available here.
Current oil and gas wells, marked in gray, and "orphaned" -- abandoned -- wells, marked in red. Louisiana Legislative Auditor
The report was released as Gov. Bobby Jindal is poised to sign several bills protecting the oil and gas industry from "legacy lawsuits" filed by private landowners and the Southeast Louisiana Flood Protection Authority-East to repair environmental damage caused by their operations.
The report recommended that the Legislature increase oil and gas production fees levied by the state and identify other sources of funds to cover the cost of plugging thousands of orphaned wells in the state.
"The current production fee is not sufficient to address the current population of orphaned wells," the report concluded.
The state's existing production fees are $0.015 per barrel of oil and condensate produced and $0.003 for every thousand feet of natural gas produced, which resulted in $4.8 million being collected in the 2013 fiscal year.
Unlike other leading oil and gas production states -- including Texas, Oklahoma and California -- Louisiana has only required 25 percent of the state's 57,819 wells to be properly covered by financial security agreements, the report said. That's because the state's financial security law that took effect in 2000 resulted in 18,000 wells being grandfathered, and state officials have found that another 24,000 wells meet exemption criteria set up by the law.
The financial security requirements are used by the state to plug a well if it is abandoned – "orphaned" – by an operator.
"As of July 1, 2013, there were 2,846 orphaned wells that have not been plugged," said a news release announcing the audit. "Since the financial security requirements took effect, 397 wells have been orphaned by operators exempt from providing financial security."
And the report also found that the amount of financial security required by the law for those operators that aren't exempt from its requirements is "not sufficient to cover the cost of plugging all wells," the report said. It found that Louisiana has one of the lowest financial security amounts required for wells on land that are drilled to less than 3,000 feet deep.
The report found that the median cost of plugging land wells drilled to less than 3,000 feet was $7 per foot, while the median cost to plug wells drilled in inland waters was $18 per foot. But the Office of Conservation regulations only require security covering $1 per foot and $8 per foot, respectively, the report said.
"For example, an operator with a land well with a depth of 1,700 feet would only be required to provide $1,700 in financial security," the report said. "However, actual pluggling costs would be approximately $11,900, a difference of $10,200."
And that doesn't cover the additional cost of remediating environmental damage at the well site, the report said.
"Not having sufficient financial security to cover the cost to plug wells may provide an incentive for operators to orphan wells instead of plugging" them, the report found. "For example, if the financial security amount is too low, operators may abandon the well and forfeit the financial security because it is cheaper to abandon the well than to pay the actual cost to plug the well."
The 25 percent of the state's wells covered by financial security means nearly $50 million is available to pay for plugging and cleanup. If the same amount of security were required for the 75 percent of wells exempt because of grandfathering or exemptions, it would total nearly $150 million.
Other states require minimum financial security amounts per well of $4,000 in Pennsylvania, $15,000 in California, and $100,000 in Alaska, the report found.
The report also found that the Office of Conservation failed to inspect at least 53 percent of the 50,960 oil and gas wells in the state at least once every three years between July 1, 2008, and June 30, 2013, as required by department rules. That resulted in more than 12,700 wells not being inspected at all during that time, according to the news release.
The Office of Conservation also has failed to develop an effective enforcement process to address noncompliance, the report said.
It found that 7,665 routine inspections showed one or more violations between 2008 and 2013, but the audit found no record of compliance orders in 15 percent of those cases, and not all wells were re-inspected to determine if the violations were corrected.
"Although the agency has the authority to impose civil penalties for violations, it does so infrequently," said the news release. The report found that since fiscal year 2008, the Office of Conservation has only levied an average $150,468 in penalties for inspection violations. It decided against levying another $471,000 in penalties that could have been charged for violations, the report found.
The conservation office also is ineffective in identifying inactive wells and didn't consistently insure such wells were properly plugged when they had no future use, as required by state regulations.
"Although inactive wells pose environmental and public safety risks and may become orphaned, the state did not issue orders to plug 86 percent of inactive wells reported by operators as having no future use," the news release said.
The state also is not requiring operators to specify when a well may be used again, the report found.
"As a result, wells can be placed in this status for extended periods of time to avoid being plugged and are at a higher risk of becoming orphaned," the report said. It found that of the 11,269 wells listed as being in inactive status with future use as of June 30, 2013, 5,239 had been listed in that status for more than 10 years.
The result, the report said, is that the number of orphan wells may grow in the future, and identified 9,415 inactive wells that "can be considered at risk of being orphaned."
While the state has only plugged an average of 95 orphaned wells a year, the report found that between 2008 and 2013, an average of 170 wells were orphaned each year.
Since 2011, the Office of Conservation has focused on plugging "urgent and high priority wells since these wells pose the most environmental and public safety risks," the report said. That's resulted in an increase in the average plugging cost per well from $26,000 to $163,000. And the agency has not used $1.5 million set aside as security from some operators pending a legal interpretation of how to transfer the money to the orphan well fund.
While we are talking about waste, the industry needs to find better ways to deal with waste water and radioactive waste from fracing. The next big battle for drillers are going to be injection wells and the disposal of radioactive filter socks. I was surprised to find out that in 2013, PA sent 16,000 tons of radioactive material to landfills. I know that this is low level radioactive material, but when you start concentrating thousands of tons in one spot, you have to wonder. Also they have already found contractors who are illegally dumping the material.
Good point, tc. I think I've read a total of one Internet article on disposal of filter socks.
Louisiana TMS production reports thru 7-1-14 (some wells are thru 6-1-14)
Great article in American Oil and Gas Reporter titled "Tuscaloosa Marine Shale Rewards Persistent Independents"
Interesting article in The New Orleans Advocate:
Read it yesterday....and wondered if there are any reporters with even basic O&G knowledge at any of the LA newspapers that historically have covered local/regional E&P activity. Doesn't appear so as all we get are recitations of press releases without background or insightful questions.
The main problem with the piece is its reliance on the assertions of well cost. Drilling a TMS well in an area with sufficient well control requires no "pilot hole" and results in fewer drill days and lower drill cost. However there are few areas where that can be done with any level of certainty. In areas where there is no well control a "pilot hole" is required to get the landing depth and formation dip correct. With leasehold requiring over 200 unit wells to hold the underlying leases GDP can't afford to drill infill wells, they must drill HBP wells. Anyone who has been following the wells drilled to date knows the average is not 26 days or anything close to it although a small number have achieved that reduced drill time in specific instances. At the rate GDP is drilling, a lot of leases will expire before the company reaches 200 TMS wells.
New wells are drilling at 26 days in LA portion of the TMS, but GDP is only drilling 5,000 ft. laterals in that area. Also on yesterdays conference call, GDP hinted that in the end they will only keep around 150,000 net acres.
For people wanting to keep up with the TMS, Goodrich posted yesterday a new presentation with earning with new info. Also if you join seeking alpha you can read, easier than listening to it, the transcript of the conference call.