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Operators, including majors, are beginning to move into the Mississippi Lime play in Kansas, while an emerging horizontal Woodford play in Oklahoma is adding to the attraction.
The Mississippian limestone or Mississippi Lime play started around 2009 with the first horizontal wells in Oklahoma with SandRidge Energy leading the way. Three years later, companies like Devon, High Mount, and Calyx are opening up a horizontal Woodford play in the same area.
However, what makes the Mississipian limestone play somewhat unique – and attractive – is that it is very low-tech. At the same time, it is very cost-effective to drill into the formation with well costs ranging around US $2.8 million to $3.5 million.
"The Mississippian Lime is a fairly low-tech play, and you're in an area where there is already a lot of infrastructure in place from previous production," said Steve Antry, chairman and CEO, Eagle Energy Co. of Oklahoma.
"It is a relatively shallow play at 909 m to 1,818 m (3,000 ft to 6,000 ft) of depth. It costs about $3.5 million in well costs. There are a short number of drilling days. It is very low-pressure and we use low-tech equipment," he said.
"We're drilling our 50th well right now. We've been continuously surprised at the number of really big wells. Two years ago, the Mississippian was barely a blip on the radar screen. What's developing in this trend as it gets bigger is a series of core areas that keep elongating the play," Antry explained.
The horizontal wells drilled in the play have lateral lengths between 758 m to 1,515 m (2,500 ft to 5,000 ft) and are fracture stimulated in six to12 stages. The fracture stimulation treatments are not as large as those in the Bakken play or other unconventional resource plays such as the Eagle Ford, according to Magnolia Petroleum Plc.
SandRidge: 'Probably the biggest single player'
"The Mississippian play from our perspective has a lot better porosity than what you find with most of the tighter rocks that the industry is drilling today," said Kevin White, senior vice president, business development, SandRidge Energy. "In conjunction with better rock quality than tighter shales, it is rather inexpensive to drill.
"The formation is somewhere between 1,212 m to 1,818 m (4,000 ft to 6,000 ft), depending on what part of the play you're in, before you kick off and go horizontal. We spend around $3 million to drill these wells," he added.
And SandRidge knows what they are talking about. The company is "probably the biggest single player" with about 2 million net acres under lease. "The play itself – at least what we would define as 'buy' areas for us to acquire acreage – is about 17 million acres. The play goes through northern Oklahoma, and southern and western Kansas," White explained.
The company is largely done with its leasing. "We have enough acreage that we would have drilling opportunities that will probably carry us out about 15 years," he said.
"The Mississippi Lime is really our growth area. We have two other areas where we're spending capital. One of those areas is the Central Basin Platform in the Permian basin," White continued. "We recently closed our acquisition of a company that has shallow-water GoM properties and production. We'll be making some investment there, but the real growth for the company is in that Mississippian play."
This year, the company is going to drill about 380 wells. "We're expanding the geographic area where we're drilling, so we're going further west in Kansas. We've got plans to add one rig per month all the way through the end of 2013. We're in a continued ramp-up phase," he said.
The company has learned quite a bit about being successful in the play. Its drilling time has dropped from about 30 days early in the play to about 19 days over the past two months.
"Early in the play, we were putting in more frac stages than we are today. We've learned we can use six to 10 frac stages. We were also spacing fracs too close together and perhaps overstimulating the rock, which was encouraging more water production than was absolutely necessary.
"We actually backed off on the number of stages, which is a little bit different than in the rest of the industry. In terms of ingredients, we are now using basically water, sand, and some friction reducer," White said.
"It's a pretty simple and inexpensive frac. It doesn't take a lot of horsepower. We are able to use lower-horsepower rigs and lower-horsepower frac fleets," he added.
The company's success has caught the attention of several foreign investors. Early in 2012, the company closed a joint venture with Repsol YPF for $1 billion. Last August, an affiliate of Atinum Partners Co. Ltd., a Korean company, invested $500 million for about 113,000 net acres.
SandRidge may be the biggest player in the Mississippi Lime, but it definitely is not the only player.
Eagle is flying high
"The Mississippi Lime has been very good to us. We've gone from about 1,000 boe/d of production to a little over 10,000 boe/d," Antry told participants at the Hart Energy DUG Conference on April 24, in Fort Worth, Texas. "The Longhurst No. 1 is the biggest well in the trend. It came in at about 3,000 boe/d. In a little over five months, the well had paid out five times. It's been an eyepopper."
What was funny for the company was that the Mississippi Lime was not even the primary target when the company started drilling in the area.
"When we picked up our initial dataset in the fourth quarter 2009, the Mississippian was a distant secondary objective. Our intention was to consolidate some of the Hunton Lime. Then, we started hearing about some data-points from SandRidge and Chesapeake.
"We convinced Riverstone to let us risk some of our capital to test our thesis that the Mississippian might be good. We retested one of the crummy Hunton wells. We cut a window into the Mississippian at a little shallower depth than the Hunton. After that, we stopped drilling Hunton wells and went straight to the Mississippian," he explained. "It was encouraging enough not to drill any more Hunton wells, and we didn't look back."
Now, the company has four rigs running in the play and plans to have six rigs working by year-end 2012. Assuming three wells per section, the company has identified about 600 drilling locations.
"It's a foregone conclusion that the area is going to four wells per section," he said. "That's coming by the end of the year. That means we will have about 750 total locations. Chesapeake, Chaparral, and SandRidge have been permitting wells that represent the fourth well in a section."
The Mississippi trend started off in Oklahoma in about eight counties. "We're right in the middle of Woods and Alfalfa counties. SandRidge is doing very well up in Kansas, and there is actually some activity in eastern Colorado right now as well," he said.
"This is the point where you say we're really lucky," Antry added. "The word luck doesn't embarrass me in the least. It's taken me 35 years to get this lucky."
Eagle Energy also has learned a lot about how to be successful in the Mississippi Lime. The Nemaha ridge cuts through the eastern part of the trend. There is a lot of difference in wells east or west of the ridge. Eagle is primarily west of the ridge.
He pointed out that a lot of datapoints are now coming from east of the Nemaha ridge from Encana, Halcon, and Range Resources. Recently, Osage Exploration and Development Inc. reported a well with an initial production (IP) of 1,185 boe/d. Companies in this area have to focus more on structure than do operators west of the ridge.
Eagle pays close attention to the mud logs. "We just work off the mud logs. We don't even run electric logs. Again, it is a very low-tech play. There are probably 500 horizontal datapoints in Oklahoma and probably 150 in Kansas," he said. "We can tell with mud logs how good a well will be. Mud logs have not failed us yet."
Early in its efforts in the play, the company drilled too deeply into the Mississippi Lime. The well was producing a lot of water. The formation has 10% to 15% porosity and 35% to 65% water saturation. What the company learned was to drill the horizontal sections in the top 18 m (60 ft) of the formation.
"We map our area based on the top 33 m (100 ft) with any porosity greater than 5%. That has worked pretty well for us. Our target for the IP type curve is 705 boe/d. Our average IP type curve over the last 12 months is a little over 800 boe/d. We haven't drilled any dogs. We have some very good wells," he explained.
Eagle has made quite a few changes in its frac procedures as well. "We started out doing our fracs, which were a little too big. We went down to our current design, which is really modest," Antry said.
Based on the results from its newer wells, Eagle now has a program to go back in and restimulate its earlier wells. "For about a $400,000 frac, we added $10 million in the first well we reentered on our PV-10 reserves. We're clearly identifying more wells to reenter. We now routinely refrac our wells after a certain period of time," he added.
As part of the company's change in its frac design, Eagle uses a fraction of the amount of proppant than anyone else does and about four times more acid.
"These are not like the big shale fracs and are relatively inexpensive. We think the acid is the key out here. Some people agree with us and some don't. We look at the prop-pant more as just a diverter. To us, it is just going into the microfractures so the acid can get out further.
"We think the results are rather telling. These are some of our better wells," he said. One well was brought in at 2,600 boe/d.
Antry pointed out that one of the biggest contributors to the growth for all companies in the play is the willingness to share information. "I got to witness camaraderie in the oil and gas business. I can't even express to you how much data sharing there was by SandRidge and with local companies like us and Spyglass. We were all getting together early on and sharing information. It was very gratifying. Even though we're competitors, we helped each other a lot."
Eagle has an acreage position of about 100,000 acres. The company is moving beyond its sweet spot in its exploration efforts. "In one of our newest wells, we're testing the 'B' member, which is the middle member and down a little deeper. We've had some really encouraging results, so we'll see if that is present in our acreage."
The company also is moving into Kansas where it has about 5,000 acres. "I think there are still some core areas yet to be identified," Antry said. "We have a little pilot program where we'll be shooting 3-D seismic in Kansas this
summer. If it is good, there are about 50 more locations to drill up there."
Outside Oklahoma and Kansas, he thinks there are Mississippian versions of this play in other states that should work. "There are a lot of people I know looking in those areas," he added.
Minnows to majors in the Mississippian play
Small companies opened up the Mississippian play and are still integral to further development of the area. Now, the majors are starting to creep into the edges of the play.
Minnows like Magnolia Petroleum acquired additional acreage in the proven and producing US onshore hydrocarbon formations of the Mississippian and Woodford in Oklahoma.
The company acquired 1,191 net mineral acres with an average 31% working interest and 24.8% net revenue interest in the Mississippi Lime, including the opportunity to participate in six potential wells. An additional 245 net mineral acres were acquired in the Woodford and Mississippi oil plays.
As an example, Magnolia is participating in the Lois Rust 7-27-12H, which was drilled and is waiting on completion, with 2.29% working interest and 1.72% net revenue interest. Chesapeake is the operator. The completed well costs are estimated at $3.72 million. For about $85,548, Magnolia is taking part in this well.
"So far this year, we have acquired 3,000 net mineral acres primarily in the proven Mississippian formation, the reopening oil play in Oklahoma," said Rita Whittington, Magnolia COO. "This is a crucial step on the road to accelerating Magnolia's transformation into a significant US onshore oil and gas company."
At the opposite end of the scale is Shell Oil, which just recently began activity in the play in Kansas. Antry, for one, was very glad to see majors moving into the play.
There is a long list of other companies in the play, including: Calyx Energy, Ceja Corp., Chaparral Energy, Chesapeake Energy, EOG Resources, Osage Resources, Pablo Energy, Raam Global Energy Co., Red Fork Energy Ltd., Running Foxes Petroleum, Sullivan & Co., Spyglass Energy Group, Territory Resources, Devon Energy, Ameri-can Petro-Hunter, and Vitruvian Exploration.
AusTex Oil Ltd., an Australian firm in the play, has about 5,000 acres in Kay County, Okla., and around 27,000 gross acres in Sheridan and Thomas counties, Kan., said Dan Lanskey, managing director, AusTex.
"In Kay County, we have drilled two verticals as operator and participated in one horizontal well with Range Resources. On the verticals, we have completed two stage fracs in the chert and solid with IPs of 50 boe/d and 90 boe/d. The horizontal well has been drilled, fraced, and is waiting on hookup," he said.
The Mississippi Lime is the company's No. 1 focus. Currently, the company is drilling a 10-well vertical program to delineate the Kay County acreage before going horizontal later in the year. "We're currently developing two vertical wells per month in Oklahoma and have just finished seismic acquisition in Thomas County," Lanskey said.
The average cost of well for AusTex is about $3.2 million. The company's longest lateral is 1,192 m (3,911 ft). In addition to the Mississippi Lime, the company has some historical production in Oklahoma from the Red-fork, Cleveland, and Layton sands.
Revenue is growing from production success, he said. "However, we are still raising capital as required as a public company. We are looking for farm-in/joint venture partners. We expect our TSXV listing to occur during calendar year 2012 (the company is already listed on the ASX as AOK)." Lanskey noted, "Historical well completions indicate a wide variety of completion methods and perforated intervals in the Mississippi Lime. Cumulative production levels on vertical wells range from 10,000 boe to 100,000+ boe, depending on location and completion methods. Similar patterns are being reported in the horizontal completions with various operators using different methods of completion." For AusTex, "The chert/chat is a lot easier to produce than the solid. However, the solid is naturally fractured and appears to respond well when fraced at a high rate," he concluded. American Petro-Hunter is expanding the play into Payne County with three wells planned for 2012. In addition, the company is drilling two wells during the year in its North Oklahoma project.
Acreage for sale, opening up Woodford play
Territory Resources is a small private company in Stillwater, Okla., that originally had about 200,000 acres in the play. "We've sold off 60,000 acres and are selling off another 100,000 acres. We plan to stay in the area with about 40,000 to 50,000 acres," said Ed Gallegos, Territory Resources owner.
The company has two blocks for sale. The Kildare Block in Kay County has 24,000 gross (23,000 net) acres, which are underlain by the Mississippian Limestone. Its Red Rock Block in Noble County covers 85,000 gross (77,000 net) acres and is underlain by the Mississippian limestone and Woodford shale.
RBC Richardson-Barr is currently marketing the two blocks, which should be available for another two months, Gallegos explained. "It's an interesting play. We've done a lot of core work in the Mississippian. It is estimated that there are 15 to 20 million barrels of oil per section in the play."
Once the leases are sold, the company will shoot 3-D seismic over some of its remaining acreage and continue development in the area. "It's on the eastern side the Nemaha Ridge. We have one rig running. After we shoot the 3-D, we will have two rigs running," he said.
Other companies in the area include High Mount with four rigs running and Devon Energy with up to a dozen rigs, according to Gallegos.
"There is in an emerging horizontal Woodford play in the area. We've drilled one good Woodford well." Calyx Energy has two rigs running in the Woodford area. "They have now moved to doing 70% of the work in the Wood-ford and 30% in the Mississippian," he added.