Thanks to the recent resurgence of activity in the Permian basin, an area well-versed in the roller coaster nature of the “business,” operators in the area are once again singing its praises. Activity in the basin is humming right along, and it is a tune that many in attendance at the recent Hart Energy DUG Permian Basin conference in Fort Worth, Texas, were excited to hear.

Pros and cons

In taking a closer look at some of the hot plays and what drives their popularity, Mike Wichterich, president of Three Rivers Operating Co. II LLC, opened his presentation by exploring the Wolfcamp shale, the Bone Spring formation, the Wolfcamp shale, and the Cline shale.

“What is great about this area is we have lots of well control,” Wichterich said. “Well control means we generally understand where the rock is. The mystery is how it gets developed.”

This is perhaps not so mysterious after all. Wichterich examined each play by studying the number of wells drilled each year. The Wolfberry and Bone Spring both have exhibited similar tendencies. Over the years wells are drilled out to the edges of the play, and subsequently the density of wells near the center increases. The Wolf-camp is showing similar tendencies, and it is likely that the Cline will follow suit.

However, he said that the relative depths of these plays mean that the Cline and the Mississippi, which are deeper plays, will struggle to be as economic as their shallower neighbors.

“To date, we’re seeing that the Cline has some really good wells,” he said. “But we haven’t seen better wells than the Wolfcamp. It’s probably a little less economic, at least today.”

Overall, he said, the Midland basin is notable for its drilling inventory. The four largest producers average almost 12 years of drilling inventory. The wells are expensive, and many of them need to be drilled to achieve economies of scale.

“If you have a 250-mile by 300-mile [402-km by 483-km] basin, that’s 48 million acres,” he said. “Let’s say that only 10% of that acreage is prospective. Now we’re down to 4.8 million acres. If we divide by 1,000, that’s 4,800 units like the one Pioneer paid [US] $180 million for. That’s $686 billion of investment.

“Pioneer does not have $686 billion. Apache does not have $686 billion. We’re going to see a lot of players come into this. It will not be the Pioneer and Apache shale; it will be the ‘all of the people in this room’ shale. It’s a phenomenal play,” he added.

One Approach to the Wolfcamp

A widespread, thick, consistent, repeatable play, the southern Midland basin’s Wolfcamp oil shale play has attracted some of the world’s major players. J. Ross Craft, president and CEO of Approach Resources, shared with conference attendees how the company is maximizing the Wolfcamp’s resource potential through horizontal drilling techniques.

“This play could have 14 billion barrels to 20 billion barrels of recoverable reserves on it, which would make it the largest find in US history,” Craft said. “I think that’s a major accomplishment.”

With just slightly under 100 MMbbl of proven reserves, 99% of which are in the Permian basin, Approach operates 167,000 gross acres in the area. The company has identified more than 2,000 horizontal drilling locations targeting the Wolfcamp oil shale play and is currently running three horizontal rigs.

Since focusing its resources on the Wolfcamp shale, Craft said the company’s oil percentage ratio has gone up “nicely,” with strong organic production growth driven by oil from its horizontal drilling operations. “We’ve tripled oil production since 2009, and now it looks like we have derisked a big chunk of our acreage,” he said.

The Wolfcamp’s thickness sets it apart from other plays. With the upper portion measuring 274-m to 335-m (900-ft to 1,100-ft) thick at depths of 1,676 m to 2,438 m (5,500 ft to 8,000 ft), completions can be challenging at times. “But that’s what makes this place so unique,” Craft said.

He noted the play’s three productive benches, which enable the company to drill stacks to tap its enormous potential – with estimated oil and gas in place of 119 MMboe to 182 MMboe per 640 acres. The play is located in the peak oil generation and early gas generation window. With a porosity of about 7%, the Wolfcamp also has a high density of natural fractures observed in whole cores, image logs, and 3-D seismic data.

“I can’t emphasize enough that it’s not the drilling of these wells, it’s the completion of these wells that makes them do what they do,” Craft said. When drilling the play’s three benches – the A, B, and C benches – Approach used slickwater instead of gel and limited friction-reducing agents. “You have to be careful in the A bench. If you get too far up in the A bench and you break out of the Wolfcamp, you have a major frac gradient change,” he said.

Using slickwater can prevent drilling operations from getting too much height, which can be a helpful factor to consider when looking at fracability.

“It takes more than one run to drain this thing,” Craft said. “And think about this when you have 1,200 ft [366 m] of column: Think of this not as individual wells, but as how are you going to drain the column. That’s how you have to look at it.”

Cline activity climbs

Acquiring substantial Permian basin resources was the easy part. For Apache Corp., creating an orderly process to accelerate development of 34,000 Permian basin locations spread across 1.6 million net acres — roughly a 50-year inventory — is the challenge.

“There is a ton of resource out there for us to get after over the next several decades,” John Christmann, vice president for Apache’s Permian basin unit, told attendees at the conference.

Apache came across its substantial tight oil formation holdings in the Permian basin the old-fashioned way: After spending significantly on Permian acquisitions that culminated in 2010 with $7 billion for BP’s North American onshore assets and $3.9 billion for Mariner Energy, the company found itself atop multiple prospective tight formation oil plays, including the Cline shale.

Apache currently operates more than 12,000 wells in the Permian basin. Its holdings are scattered across the region’s three major geologic provinces, including the Delaware and Midland basins and the Central basin platform that separates the two sub-basins into a butterfly-shaped geologic province.

Most of the company’s focus in 2013 will be on its Midland basin properties. According to Christmann, Apache has nearly 1,000 Wolfcamp shale locations in the Midland basin with a potential 347 MMboe and another 3,321 potential locations in the Cline shale with a potential 642 MMboe. The company also has more than 17,800 locations that can be drilled vertically in the Midland basin that could produce 1.7 Bboe.

To date, Apache has proved up reserves in 11 horizontal plays in the stacked formation cornucopia that comprises hydrocarbon potential in the Permian basin. Apache will target nine plays horizontally in 2013 including the Avalon shale, Bone Spring, and upper Wolfcamp in the Delaware basin and the Spraberry and horizontal Mississippi Lime in the Midland basin.

It is the Midland basin that will witness the bulk of the effort. Specifically, Mariner’s Deadwood field in Glass-cock County has proven especially fortuitous. The field was producing 2,000 b/d of oil and 6 MMcf/d from 58 wells when Apache assumed operatorship in January 2011.“When we stepped into the Mariner properties, a lot of industry had made a bet that Mariner would not be able to hold all their acreage and top-leased that,” he said. Apache drilled and completed 19 wells in January 2011 to capture the acreage. Since then, Deadwood production has grown 8.4 times to 25,400 boe/d, including 15,340 b/d of oil, on 527 wells in just 28 months.

Apache is currently running a six-rig vertical program at Deadwood and is looking at downspacing from 40 acres to 20 acres. But the spotlight is turning to the horizontal potential. The Deadwood acreage is in the center of the Cline shale fairway. Apache increased its Cline shale rig count to four units in January 2013.

Permian basin gives company its ‘best economics’

Formation’s plays lead to promising returns.

As a holder of one of the largest leasehold positions in the Permian basin, Devon Energy continues to experience strong growth in the area. The Permian, sitting at the top of Devon’s risked resource list at 2.8 Bboe, is home to around 3,600 producing wells for the company.

“There are several reasons the Permian attracted Devon,” Andy Coolidge, Devon’s vice president for the Permian basin, said. “It’s truly an amazing basin with thousands of feet of stacked pay and a long history of production. There are a lot of different ways to make money in the Permian from several different zones to choose from at a wide range of depths.”

With exploration and development programs in multiple Permian plays, including the Delaware, Bone Spring, Wolfcamp shale, and Cline shale, Devon increased production to an all-time high of more than 68 Mboe/d in 1Q 2013, up 21% from 1Q 2012. Currently, Devon has 29 rigs operating in the Permian.
In Devon’s Delaware and Bone Spring horizontal plays, the company has 185,000 net acres. Oil and NGL account for about three-fourths of production.

“Some of the company’s best economics are in the Permian basin, and some of the Permian’s best economics are in the more conventional plays like the Bone Springs-Delaware sands,” Coolidge said. “While they’re not as unconventional as the Wolfcamp shale or the Cline, they stack up very well.

In September 2012 Devon closed a $1.4 billion joint venture agreement with Sumitomo Corp. – a deal that gave Sumitomo a 30% interest in Devon’s approximately 650,000 acres in the Cline shale and Midland Wolfcamp shale. Devon serves as operator in the plays.

“We are very excited about the Midland Wolfcamp shale,” Coolidge said. “In 2012 we drilled about 21 wells there and plan to drill up to about 92 wells this year. We’re seeing strong results and good production.

In the Cline shale area on the eastern bank of the Midland basin in West Texas, Devon has been steadily ramping up drilling.

“Our partnership’s acreage in the Cline shale is 556,000 net acres after our agreement with Sumitomo,” Coolidge said. “We have about 11 wells drilled to date and plan on drilling about 30 wells in 2013.”

He added that the company is in the early stages of evaluation in the play, and its strategy is to drill a wide range of areas that cover several counties for data collection.

“We are very encouraged with some of the early results, but we have a ways to go before we turn that into development,” he said. “We are still exploring.”