Shale could see more drilling

09 17, 2012 by The Advocate

A year after oil companies began gobbling up leases in the Tuscaloosa Marine Shale, 19 wells are producing or under way, but some industry experts expect a big increase in drilling to hit next year.

Most of the leases are now over a year old, and oil and gas companies typically sign three-year leases with options for two-year extensions, said Kirk Barrell, president of Amelia Resourcess LLC in The Woodlands, Texas.

“I think this play has to accelerate drastically next year,” Barrell said.

Barrell said it’s an exciting time in the Tuscaloosa, a shale formation that stretches across the middle of Louisiana and is being targeted for oil production.

There’s a basket of good operators, and they’re getting some good wells, Barrell said.

For example, two of Encana Corp.’s most recent wells had 30-day initial daily production rates of 933 barrels and 1,072 barrels.

“I would say we’re very pleased with the reservoir performance. As a matter of fact, I’m excited about the reservoir performance,” Eric Marsh, executive vice president and senior vice president of Encana USA Division, said during the Barclay’s CEO/Power Conference on Sept. 6.

Encana has 355,000 acres leased in the Tuscaloosa with an estimated 9.4 billion barrels of oil, Marsh said. The company has around 1,250 well sites, has drilled and completed five wells, and plans to drill seven more this year.

The Tuscaloosa has a couple of things in its favor, Marsh said. There is a significant amount of infrastructure in place, and the oil itself, Louisiana Light Sweet crude, can fetch $15 or more per barrel than the benchmark crude, West Texas Intermediate.

In the last year, the premium for a barrel of Louisiana Light Sweet has ranged from $8.50 to as much as $29.75, according to Bloomberg. This week the price for Louisiana Light Sweet was more than $17 higher than the benchmark West Texas Intermediate price, which has been in the $95 to $97 range in September.

Encana has said its target estimate for its Tuscaloosa Marine Shale wells’ potential production, also known as estimated ultimate recovery, is the equivalent of 730,000 barrels of oil per well (worth around $83.2 million at this week’s prices).

Encana has “a reasonably high confidence level” that it will achieve its target recoveries, spokesman Doug Hock said.

Halcón Resources Chief Executive Officer Floyd Williams, who also spoke at the Barclays conference, said he expects wells in the formation to produce the equivalent of 600,000 to 700,000 barrels per well.

Halcón began leasing around six or seven months ago and expects to lease 100,000 to 150,000 acres, Williams said. The company has around 60,000 acres under lease, and the price has jumped from $250 an acre to around $1,000.

With those kind of production results expected, local officials have begun scrambling to prepare residents to nab some of the expected job bonanza when the shale booms.

“We do have a good feeling about the oilfield shale over here in this parish,” said Dennis Manshack, West Feliciana Parish director of economic development. “The well that they (Devon Energy) did complete is almost 500 barrels a day with a tight choke on it.”

The well’s daily production could actually be two or three times that amount, Manshack said. Drilling companies often restrict the flow during initial production, but let the well flow more rapidly once full production begins.

Manshack said he has done some preliminary reviews of what happened in the Haynesville Shale in northwest Louisiana and the Marcellus Shale in Pennsylvania.

Drilling activity in those shale formations, and others, led to big increases in the demand for skilled labor and services, such as housing, for those workers.

With the proper training, residents of West Feliciana, East Feliciana and Pointe Coupee parishes could fill many of those jobs, Manshack said. The West Feliciana Police Jury and the Economic Development Board are working together now to plan for “the inevitable” boom.

However, Louisiana Oil and Gas Association spokesman Ragan Dickens, who has twice addressed West Feliciana officials, said it’s too early to tell whether the Tuscaloosa will be similar to the Haynvesville Shale, a natural gas-producer that triggered a drilling frenzy that helped drive down natural gas prices to a point where producers are favoring oil plays.

“The jury’s still out,” Dickens said of Tuscaloosa’s outlook.

“There’s definitely resources in the ground … but they’re still trying to figure out how to extract those.”

People in that area, and Dickens as well, hope the Tuscaloosa will bring the same kind of economic impact that the Haynvesville did, Dickens said. There are lots of positive signs — eight of the biggest players in natural gas have leased acreage in the Tuscaloosa — but it’s impossible to say what will happen.

West Feliciana officials have already met with representatives of Council Development Corp.’s Morgan City location and Baton Rouge Community College.

Council Development is owned by PEC Premier Safety Management Training and provides accelerated training for onshore and offshore oilfield workers, Manshack said. A nine-day course can prepare workers for an entry-level job in the oilfield.

The community college is designing a number of courses for the parish that will help residents and students gain welding, electrical/instrumentation and carpentry skills, Manshack said. Those skills can help residents get jobs in industry and the oil field.

“These courses cost. The Police Jury’s not going to be able to foot the whole bill,” Manshack said. “But we need to train some people so we can get some of those people in the industry, to make them productive.”

The nine-day course is around $3,000, Manshack said.

West Feliciana has little in the way of economic development funding, he said. But with the kind of potential the Tuscaloosa Marine Shale offers, local officials can try to get help from state legislators and officials, as well as private industry.

Manshack said West Feliciana hopes to be able to have the training programs in place in January.

Dickens said sitting down with the oil and gas industry, as Caddo and Bossier parishes did, to talk about things like roads, permitting and the environment, is a good idea.