Cracking the code

Companies working through Tuscaloosa shale’s complexities

It’s been three years since energy companies began leasing hundreds of thousands of acres in the Tuscaloosa Marine Shale, hoping to cash in on the mother lode: 7 billion barrels of recoverable oil.

But the expected economic surge that oil and gas industry members and public officials envisioned has yet to materialize. The formation’s complexities — including a softer rock that won’t easily release the oil it hoards — ­have been difficult to solve. And competition from other, easier-to-crack shales around the country have drawn oil companies’ attention and resources.

“I don’t think we have a rig running in Louisiana,” said Don Briggs, president of the Louisiana Oil and Gas Association.

But that is expected to change, and fairly soon.

Two weeks ago, Goodrich Petroleum Corp. bought Devon Energy Corp.’s two-thirds share of 277,000 leased acreage and seven wells in the Tuscaloosa Marine Shale. Most of those leases are in Louisiana, where the formation stretches across the middle of the state into eastern Mississippi. After the purchase, Goodrich President Robert Turnham Jr. said the company believes it has cracked the Tuscaloosa’s code.

For example, Goodrich’s Crosby well, in Wilkinson County, Miss., produced an average of 1,137 barrels per day during its first 30 days of production. The current price for oil produced from Tuscaloosa wells is around $110 a barrel. At that price, the Goodrich well’s daily production would be worth around $125,000.

Goodrich hopes to boost its drilling program from $50 million this year to as much as $300 million next year, if the company can raise additional money or add an investment partner. The company expects to lower its well costs in the Tuscaloosa from $13 million for a recent well to the $10 million range.

Goodrich paid $26.7 million for Devon’s leased acreage, a fraction of the estimated $119.0 million Devon invested in the formation.

Baton Rouge landman Dan S. Collins said Goodrich got “a super deal.”

“The six or seven wellbores are of far greater value than the dollar amount that (Goodrich) spent,” Collins said. “That’s the real bargain in this.”

Goodrich can go back to those sites and rework the wells to increase production or even drill additional wells from those locations, he said. The additional lease acreage is lagniappe.

Meanwhile, Houston-based Indigo Minerals is hoping that partner EOG Resources will also break through in the Tuscaloosa, Indigo Chief Executive Officer Bill Pritchard said. Houston-based EOG is one of the best at drilling in shale formations, he said.

EOG’s most recent well in Texas’ Eagle Ford Shale is expected to produce at least 1 million barrels of oil this year.

At one point, EOG had 200,000 acres under lease in the Tuscaloosa, with a big chunk of that in Avoyelles Parish. But the Tuscaloosa barely rated a mention in EOG’s most recent quarterly reports, and the company has declined to comment on its position or plans in the formation.

Indigo itself has close to 300,000 acres in the western part of the formation, Pritchard said. The company has drilled two wells in the play and plans to drill one in Vernon Parish in the fourth quarter.

Pritchard said Indigo is like everybody else in the Tuscaloosa. The company has more acreage than there is money available for drilling.

The lack of easy capital has made drillers more cautious, as have the mistakes born of the “throw-a-bunch-of-rigs-at-it-and-see-whether-it-works” approach common in the early shales, Pritchard said. Companies used to spend $250 million on drilling with no idea if the wells would make money.

These days, energy companies drill one well at a time, evaluate the results and then decide whether to drill another well, he said.

“I think the oil is there. I think eventually the industry will figure out how to get it out economically,” Pritchard said. “I think (the Tuscaloosa) is as good as any of the burgeoning plays that are out there right now.”

Indigo is among the companies working to form joint ventures to get some wells drilled, he said.

So far, 20 wells have been drilled or permitted in Louisiana’s section of the Tuscaloosa, according to the state Department of Natural Resources.

Briggs said the Tuscaloosa’s development has been slowed because drillers still need to perfect the hydraulic fracturing “cocktail.”

In fracturing, or fracking, a mixture of hundreds of thousands of gallons of water, sand and chemicals is forced underground at high pressure to crack the oil-bearing rock. After the water escapes, the sand keeps the cracks open, allowing the oil to flow up the well.

But the Tuscaloosa’s rock is mushier, more like clay than the brittle material in other shales.

Instead of cracking, sometimes the Tuscaloosa’s rock acts like a sponge and absorbs the fluid. Even when the shale fractures, the claylike rock can seal off the cracks.

Briggs said that’s one reason that a lot of the drilling money is being spent in other formations.

“You’ve got all the Marcellus play through Pennsylvania and Ohio and New York. That area’s really big,” Briggs said. “A lot of money’s flowing into Texas into the Eagle Ford Shale. A lot of money is going up into the Bakken” in the Dakotas.

Pritchard said Indigo’s major focus this year is developing the Cotton Valley play in north Louisiana.

Indigo is running three drilling rigs there, and the company has more than $100 million a day in oil and gas liquids production, he said.

Still, the Tuscaloosa continues to draw attention.

Cortez Resources in Dallas has around 50,000 acres under lease, with the majority in East Feliciana Parish, said Michael F. Catrino, co-founder, executive vice president and chief operating officer.

“Nobody’s really tested the deeper area down in East Feliciana and West Feliciana parishes,” Catrino said. “We really believe that’s probably going to be one of the best parts of the play.”

The oil in most of Cortez’s acreage lies 12,500 to 14,000 feet below the surface.

Catrino said Cortez usually brings in partners to drill its leases. The company’s core property is in the Eagle Ford, where its partner Penn Virginia is operating three rigs.

Cortez is planning to take a similar approach in the Tuscaloosa, Catrino said. But the company is still working on joint ventures to do that.

Collins said it’s important to remember that it took more than a decade for drilling companies to figure out the Barnett Shale in Texas, the first shale formation developed in the United States.

Once energy companies understood how to complete wells in the formation, they drilled hundreds and even thousands of wells, he said.