Louisiana Austin Chalk: Hundreds of Millions Down the Drain?
Louisiana Austin Chalk: Hundreds of Millions Down the Drain?
Matt Zborowski, Technology Editor | 30 September 2019
Strong initial results in 2017 from EOG Resources’ Eagles Ranch 14H-1 well sparked a land rush in the Louisiana portion of the Austin Chalk, where some big independents spent nine figures to gain swaths of acreage they hoped would be as productive as the Texas side of the play.
Their plan was to come into the geologically challenging Louisiana Chalk with modern drilling and completions techniques and produce the oil economically, launching the next big unconventional play. But, after testing the play this year, the most that early driller ConocoPhillips has to show for its work is a whole lot of water.
The Houston independent on 30 September said that it “has discontinued exploration” in the Louisiana Chalk and will record a $120-million pre-tax “dry-hole expense” in the third quarter primarily related to the play.
ConocoPhillips completed three wells in the four-well drilling program, all three of which were duds. The latest was the Erwin No. 1 well, results of which were published on Louisiana’s SONRIS online data portal in late August. The well, completed in late July, initially produced 2,845 B/D of water and just 28.5 B/D of oil and 35.4 Mcf/D of gas.
The Erwin No. 1 numbers resemble those of the first two wells drilled by the operator. Completed in May, Hebert No. 1 flowed a whopping 4,279 B/D of water and just 206 B/D of oil. Two months earlier, McKowen No. 1 came on stream at a rate of 3,498 B/D of water and 60 B/D of oil.
Nick Volkmer, vice president at research firm RS Energy, said when his team first saw the results of ConocoPhillips’ first couple of wells, they thought the company may have performed the tests during flowback. But, based on comments in ConocoPhillips’ second-quarter earnings call, “it's pretty clear that's not the case,” he said.
Even more discouraging for the companies remaining in the play is that a larger sample size of production from Eagles Ranch indicates that it really “is not a great well,” said Volkmer. Testing at 1,120 B/D after it came on stream, production plummeted 94% in its first 17 months with a breakeven price “north of $90/bbl,” he said.
“The only people happy with the results in the ‘updip’ region of the [Louisiana-East] Austin Chalk play so far are those in the saltwater disposal business! It's not the start that any of us hoped for,” wrote Kirk Barrell, president of Amelia Resources, on his regionally popular blog highlighting the Louisiana Chalk and Tuscaloosa Marine Shale (TMS). New Orleans-based Amelia has scoped out and sold drilling prospects across the Louisiana Chalk.
ConocoPhillips leased more than 200,000 acres in the Louisiana Chalk at a little under $1,000/acre. EOG and Marathon Oil also have more than 200,000 acres there, with Marathon also saying it gained its position at well under $1,000/acre. “These are big-name operators who have made hundred-million-dollar bets on the area, which leads us to believe that they clearly see something,” Volkmer said. “But in at least the public data we have, there's not a lot to get excited about here.”
Other large operators that built positions are Equinor, Cimarex Energy, and Devon Energy. Each has remained mum on the play as new wells results have been posted. They have been waiting for ConocoPhillips and EOG to prove up the play and now are hoping for good news—any news—related to EOG’s Ironwood LLC 37 H and Brunswick wells respectively spudded in April and June.
Unlike its Eagles Ranch well, which lies in a naturally fractured zone, EOG has targeted an unfractured, oil-saturated portion of the Chalk so “they can model their induced fracture network a little bit better,” said Brandon Myers, senior analyst, Lower 48 upstream, at consultancy Wood Mackenzie.
Numbers from those wells have not yet been made available in public filings. “But the rumblings I've heard are not that positive, and that kind of goes with the broader theme of what we're seeing in the area,” Volkmer said. Barrell wrote on his blog that he has heard Ironwood may also be “water plagued.”
While there have not been enough wells drilled to officially write off the play, “as a whole, we're pretty skeptical,” Volkmer said.
Is the TMS Really a Viable Alternative?
The Louisiana Chalk’s initial appeal can be attributed to decades of conventional production in the region and the known oil in place. But, “the depths permitted to drill there are deeper than 98% of all wells drilled in US onshore last year,” noted Volkmer. Drilling reports from operators show multiple mechanical failures, suggesting that perhaps the technology is just not there yet.
“The way they're completing the Chalk wells in Louisiana is with very high intensity, pretty close to 3,000 lb/ft of proppant in some cases, which puts it a little bit ahead of what we're seeing over in the south Texas area,” he said.
And, while the prolific Eagle Ford Shale underlies the Austin Chalk in south Texas, the even more geologically challenging TMS sits beneath the Chalk in Louisiana, which is hardly consolation for operators. Companies such as Encana and Goodrich Petroleum sniffed around the TMS earlier this decade but ultimately deemed it too technically difficult and expensive.
ConocoPhillips said in its second-quarter earnings call—before it pulled out of the region—that it was evaluating targets in the TMS as an alternative to the Chalk. “If you're talking about your TMS prospectively, I don't think it's a great sign,” especially given the company’s position in the TMS, which “is really deep and very gassy,” Volkmer said. However, the core of the TMS is farther north and oiler.
Perth-based Australis Oil & Gas, however, has set out to change the narrative on the TMS. The operator is trying to prove up its 115,000-net-acre core position mostly north of the Louisiana-Mississippi border, some of which it acquired from Encana at a low cost. Australis was formed in 2015 by the founder and executives of Aurora Oil & Gas after Aurora was sold to Baytex Energy. Aurora developed a liquids-rich position in the Eagle Ford, which has a similar depositional history and age as the TMS.
“They’re two for four in the TMS so far—two of their wells are actually pretty good,” said Volkmer. The company has touted those wells’ productivity on a per-foot basis, “but if you look at the well as a whole, it's definitely not great,” he added.
Much of Australis’ TMS acreage is in Mississippi, just north of the Louisiana Austin Chalk wells drilled by ConocoPhillips and EOG. Source Australis.
Australis’ Stewart 30H well came online with an IP30 of 1,216 B/D of oil and flowed a cumulative volume of 138,075 BOE/D in 6 months. The Taylor 27H-1 well produced 889 BOE/D, of which 93% was oil, and flowed 67,358 BOE cumulative in the first 2 months.
For comparison, Myers noted that the average well in 2018 across the Wolfcamp A northeast extension subplay in the Delaware Basin produced 132,000 bbl of oil in its first 6 months. Of course, the TMS well is a single parent well and the Wolfcamp A sample includes many child wells.
“The rock is very tight, so it’s very low permeability,” Myers explained. “With a big frac in the TMS you can see a high IP30, but the downside risk is rapid decline. And it’s actually kind of a similar story in the Austin Chalk in that area where, when you have that low permeability, you can end up with a very ineffective drainage network.”
The other big hurdle has to do with drilling at such great depths, Myers said, as Australis’ Bergold 29H-2 well collapsed and the operator was only able to complete six stages. At 15,000–20,000-ft deep, the weight from the overlying rock is immense. “We see that going forward as a pretty serious risk on the on the drilling side of things,” he said.
Australis on 20 September began stimulation work on its fifth and sixth wells in the play: the Quin 41-30 3H and Saxby 03-10 2H. Completion activity is expected to take 3 weeks with flowback commencing in mid-October.
Saxby 03-10 2H was drilled to 17,560 ft with a lateral length of around 5,000 ft using a high-performance water-based mud system. The system enabled the wellbore to remain stable as drilling was performed, overcoming some of the structural issues that have plagued operators in the TMS and Chalk, the company said in a recent activity update. However, the operator also reported drilling delays on Quin 41-30 3H.
“I think there are large engineering and geologic risks, but when the completion and drilling goes well in the core of the TMS, the wells can be good,” Myers said.
https://pubs.spe.org/en/jpt/jpt-article-detail/?art=6039
Views: 2219
Replies to This Discussion
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Permalink Reply by Skip Peel - Mineral Consultant on
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I am in Shreveport, LA. I attended LSU-BR for two semesters in '73 and '74. I haven't been to a game in Tiger Stadium since 2003, so it's time. I don't have a Trader Joe's or a Publix but I have plenty of Wal-Marts. Thanks for the suggestions.
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Permalink Reply by Dion Warr, CPL on
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Skip:
Tend to agree with RM here - the emphasis upon the technological communication expertise of the author appears to be more "communication" and less technological. To the extent that he cites technical sources, it's generally in support of his own thesis.
To be fair, both the AC and TMS have been particularly challenging in central Louisiana and in the Florida parishes. Most of the early results in the more "conventional unconventional" history of the LA AC has been in the western parishes and diminishing as one travels eastward. Even the "string of pearls" of productive fields have some subeconomic distances between them even where the AC beds are well existent. The TMS, to the extent that it has been "solved", lies with a current core north of the 31st Parallel (landing in the MS portion of the so-called LAMS Stack). But the author seems to suffer from a certain sort of historical myopia given that the techniques which have yielded millions of acres of new prospective area in and around the shales and other unconventional formations have been "mastered" only within the last dozen years or so, after many hundreds of millions of dollars had been expended in developing both the techniques and the fields which became the production behemoths that they are today.
We seemingly just read the epitaph of George Mitchell (my how time flies), and so recently forget that the Barnett was known in many circles as "Mitchell's Folly", in its most kind of criticisms, prior to Mitchell and other industry innovators "cracking the code" that served notice that the Unconventional Revolution had arrived.
Sorry to goof on the LSU guy, but maybe he should stick to editing the articles and not writing them. Or at least get some peer review from his other respected technical authors prior to pronouncing his work fit to print.
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Permalink Reply by Skip Peel - Mineral Consultant on
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Points well taken however I am curious how JPE has not had sufficient input to place greater editorial control over Mr. Zborowski's published articles. I also suspect that this article is not solely his work. He may have put the spin on the piece but I think it likely that other members of the JPE staff contributed to the article. That would seem quite surprising considering the organization's reputation.
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Permalink Reply by Dion Warr, CPL on
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Skip:
Not knowing how this is being offered in the publication - is it being repped as "opinion", or "commentary" versus substantive journalistic content? I am neither a petroleum engineer, nor a subscriber to the journal.
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Permalink Reply by Skip Peel - Mineral Consultant on
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I have never known JPE to publish "opinion" pieces. Anyone who signs up may receive the journals online newsletter. I probably got signed up when ordering one of the scientific papers many years ago.
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Permalink Reply by Skip Peel - Mineral Consultant on
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Mike Johnson, Rock Man and Dion, care to weigh in on this discussion topic? You opinions would be appreciated.
https://gohaynesvilleshale.com/forum/topics/is-there-a-geologic-dep...
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Permalink Reply by Mike Johnson on
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Skip,
There are several reasons for the lack of activity in South Louisiana. First of all, there just aren't many viable prospects left and most of them would be gas. It's pretty picked over. Maybe some ultradeep stuff (Eocene, UK) but that of course would be gas as well and extremely expensive. Add to that an extremely hostile regulatory environment and the ever present specter of a legacy lawsuit and the risk/reward profile just isn't very compelling.
As far as horizontal/resource objectives go, I have looked at some possibilities but the numbers just don't really work. The complex structure of South Louisiana also does not lend itself to long horizontal wells. I have looked at some things up in the Frio where the structure is more gentle but could not find anything very exciting. I do know of one company that has some sort of horizontal play down south but personally I wouldn't touch it.
Obviously the Texas plays cannot necessarily be extrapolated to Louisiana, the Eagleford being the best case in point. I do think there is potential in the Louisiana Chalk but it is going to be local rather than regional.
Hope that helps.
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Permalink Reply by Skip Peel - Mineral Consultant on
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Thanks, Mike. Your comments are along the lines I expected from a geology stand point. I am surprised that you feel there is "an extremely hostile regulatory environment". I find state regulators to be quite industry friendly in the extreme.
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Permalink Reply by Mike Johnson on
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In the case of the Department of Conservation I would say that is mostly true. Unfortunately, there are a multitude of other state and federal agencies that would probably prefer that there was no drilling allowed in wetlands. The lead time to get ALL required permits is now such that you will have to pay rentals before you get to spud. Since rentals equal the bonus in South LA, the front end cost of a prospect is double what it should be, or used to be.
Don't know if this is true but I also heard that they now require that any production facility in the wetlands must be manned 24/7. That is a deal killer for a lot of prospects given the low product prices.
I have a few colleagues who are still trying to do some stuff down there and their biggest challenge is finding someone willing to operate.
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Permalink Reply by Skip Peel - Mineral Consultant on
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I can recite numerous areas where the DNR/OOC is more than helpful to the industry. As is the state legislature. If the rumor you heard about manning wetland sites 24/7 were accurate, I think I would have heard of it. I work for land and mineral owners. They are pro-industry from the stand point of monetizing their mineral rights but do not like to be cheated on royalties or have their lands damaged. Some of those lands are wet lands. I communicate regularly with OOC staff and help lobby for regulations that benefit/protect the rights of mineral owners. Although I hear a lot about legacy lawsuits and how the legal climate limits O&G investments in Louisiana, you couldn't prove it by the billions of dollars invested in the Haynesville and TMS/Austin Chalk plays. I think you hit on the reasons for the lack of investments in South Louisiana when you mentioned the lack of oily prospects and the overall "picked over" state of historic targets.
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Permalink Reply by Skip Peel - Mineral Consultant on
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Thanks. I was afraid it might be overlooked here. When LOGA and LMOGA bemoan the lack of E&P activity in S LA and the Shelf, their reason is always fear of litigation, legacy suits. They never admit that the geology rules. Where the geology is favorable, Haynesville/Bossier/Cotton Valley, there is a wealth of activity and significant investment. Where it is not, legislation regarding legacy cases and any other type of litigation will not increase either.
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