With the successful development of the Barnett shale, many midcontinent gas producers began searching for the next, big shale-gas play.
Looks like they found it.
Explorers are scrambling to grab leases in shale-gas plays on both the Arkansas and the Oklahoma side of the Arkoma basin.
Southwestern Energy Co. said in December it will invest almost $340 million to evaluate and develop the Fayetteville shale in Arkansas during 2006.
The company also plans to spend $53.5 million to buy 10 drilling rigs to drill in the Arkoma shale play.
Combined with earlier spending, Southwestern Energy will have an exposure of half a billion dollars and an 860,000-acre leasehold in the Fayetteville shale.
You could say, they think it’s a promising play.
On the Oklahoma side of the basin, Devon Energy Corp. said it holds 70,000 net acres in an Arkoma gas play that includes potential in the Caney and Woodford shales.
Devon has become the largest producer in the Barnett shale, and last year began producing its 2,000th operated well in that play.
Like the Barnett shale, the Arkoma shale-gas plays are partly technology-driven and partly economics-driven.
And they require first-rate geological knowledge for successful development.
A Big Deal Developing
About 80 wells had been drilled in the Fayetteville shale play by the end of 2005 and most of them were producing, according to Ed Ratchford, an AAPG member and geology supervisor for the Arkansas Geological Commission.
Most of the shale-gas wells on the Arkansas side of the Arkoma have been drilled to a depth of 2,000 to 6,000 feet, he added.
“The best well to date is the Stobaugh 2-1-H horizontal well, which produced 3.7 million cubic feet of gas per day as a 24-hour initial production test,” Ratchford noted.
The shale-gas play area in Arkansas “stretches from the western part of the Arkoma Basin to the Mississippi River,” Ratchford said.
However, most of the leasing and exploration activity occurs within the eastern Arkoma Basin and the Mississippi Embayment regions of Arkansas, where the Fayetteville Shale is considerably thicker compared to the western part of the state. The thickness of the Fayetteville Shale varies from 50-75 feet in western Arkansas, to approximately 300 feet in the eastern Arkoma -- and it exceeds 1,000 feet in thickness in some portions of the Mississippi Embayment, Ratchford said.
Counties in the Arkansas play -- moving east to west -- include Phillips, Lee, Monroe, St. Francis, Prairie, Lonoke, Woodruff, Jackson, White, Faulkner, Cleburne, Van Buren, Conway, Pope and Franklin.
“The Fayetteville Shale is Late Mississippian-Chesterian in age, the same age as the Barnett Shale in the Fort Worth Basin in Texas,” Ratchford said.
Development work in the Barnett shale created something of a template for evaluation of and drilling in the Fayetteville shale, Ratchford noted.
“The Fayetteville shale had never produced in Arkansas, but everybody knew there was gas in it. All that’s changed with the frac technologies that were developed in the Barnett shale,” he said.
Operators describe the Arkoma Basin shale-gas plays as being in their infancy. So little drilling and production work has taken place -- and therefore, no one has a good estimate of overall reserves.
“We’re still early on in the whole scheme of this thing -- probably two million acres have been leased in Arkansas in the last one and a half to two years,” Ratchford said. “There’s been a big land-grab in here.”
Wait a Minute ...
Southwestern Energy began its Fayetteville shale swoop by quietly amassing a very large lease position.
“The whole thing was based on geological understanding with good engineering work in a legacy asset,” said AAPG member John Thaeler, Southwestern Energy senior vice president-Arkoma Basin exploration and production.
The company -- now based in Houston but previously located in Arkansas -- has been active in Arkansas for 76 years, Thaeler said. Much of its past activity took place in the Arkoma northeast of Forth Smith.
“That’s our legacy asset, if you will. We have over 1,000 wells we have drilled in that area,” Thaeler explained.
Just as important as that familiarity, the company already held 125,000 acres in what turned out to be the shale-gas play area, he said.
The company’s geologists and engineers zeroed in on the Fayetteville shale through a tried-and-true exploration method:
They were looking for something else.
Southwestern Energy had identified a tight-formation unconventional gas play in the Wedington Sandstone Member of the Fayetteville Shale Formation, Thaeler said. While trying to make that play work, the company found that the formation was “producing more gas than it should have.”
Additional work disclosed that the Wedington was enveloped by the Fayetteville shale, he noted.
“We said, ‘Wait a minute.’ We realized that the Fayetteville shale was the same age as the Barnett,” Thaeler recalled.
“The maturity of the shale is a little bit higher, but overall it’s similar to the Barnett shale in potential,” he added.
Since no one had ever seriously targeted the Fayetteville for its productive potential, the company was forced to do its own groundwork in assessing the shale.
“We levered off very limited well control to drill some vertical test wells, which we extensively logged and evaluated,” Thaeler said.
“We geologically went in and evaluated where we thought the highest potential Fayetteville Shale was for us. We approached that by identifying pilot areas,” he added.
While the first test wells were vertical, Thaeler expects almost all the company’s 2006 Fayetteville drilling to be horizontal.
“The whole play is turning toward horizontal wells. They typically drill about a 3,000-foot lateral that’s parallel to the maximum compressive stress direction in the subsurface. Then they do multistage fracs on them,” Ratchford said.
Most of that fracturing work has involved nitrogen foam fracs, with a subordinate amount of slick water frac applications, he noted. Typical initial production ranges from two million-three million cubic feet of gas per day for the horizontal wells.
“We’re looking at a very short snapshot in time here, so we don’t have the data to look at a really accurate decline curve,” Ratchford noted.
“Based on the limited data we do have, those horizontal wells are producing about 50 percent of their capacity in four to six months,” he said.
On the Oklahoma side of the Arkoma, the shale-gas plays are even newer and less well defined. They target the Caney Formation, age-equivalent to the Barnett, and the older Woodford shale.
“The whole emphasis on shale-gas in the Midcontinent has come from the Barnett shale in the Fort Worth Basin,” said AAPG member Charles Wickstrom, managing partner of Spyglass Energy in Tulsa, which has done work in the western Arkoma Basin.
Barnett development began with vertical wells and big fracs, then moved to horizontal wells, a switch dictated by expansion of the play into populated areas, he noted.
Over the years, operators in the Barnett accumulated a wealth of knowledge about shale-gas work.
“This data has been disseminated throughout the industry and every midcontinent exploration company has been looking for, quote, the next Barnett shale,” Wickstrom said.
Interestingly, the Arkoma plays began building before last year’s big run-up in natural gas prices. Today’s economics are speeding up shale-gas exploration throughout the Arkoma Basin.
“High gas prices are just that much better to recoup your investment,” Wickstrom noted.
At the same time, operators lament the higher drilling and completion prices brought on by increased exploration demand and high product prices.
“Well costs have gone through the roof. Some of these wells (in the Arkoma shale-gas plays) are over $4 million completed,” Wickstrom said.
Like the Fayetteville shale play, Oklahoma shale-gas exploration relies on a good geological and geochemical evaluation of formation potential.
“The whole key is looking at the total organic content and the thermal maturity of the rock,” Wickstrom observed.
Where’s That Boundary?
In Arkansas, the Mississippi Embayment marks the eastern-most extent of the shale-gas play.
“When you step out into the Mississippi Embayment, you’re sort of in a frontier area. It’s pretty dicey trying to characterize the geology of the Fayetteville Shale in the Embayment region,” Ratchford said.
The Embayment is characterized by poor well control and complex geology that includes horst-and-graben fault structures, he noted.
“There are lateral facies changes and structural attenuation. You’ve got this Paleozoic basement that’s block faulted, with 1,000 to 3,000 feet of unconsolidated Cretaceous, Tertiary and Quaternary sediments deposited on top of it,” he said.
“There are places in the Embayment where the Fayetteville Shale appears to have been eroded partly or completely when it’s uplifted on top of horst blocks,” he added.
Across much of the Arkoma, the southern edge is defined by convolutions of the Ouachita Thrust Belt.
“When you’re in the eastern Arkoma Basin and you move south toward the Ouachita front, the Fayetteville Shale is considerably deeper to test because there is a lot of thrusting and folding. There’s definitely a southern boundary of the shale play, which operators tend to avoid due to higher economic risks and technical challenges associated with drilling and well completions,” Ratchford said.
“They’re trying to figure out where the economic cutoff is located in the Embayment region and within the eastern and southern portions of the Arkoma Basin,” he added: “How far can they safely lease?”
Major players in the Arkansas shale-gas area include Southwestern Energy subsidiary SEECO Inc., Chesapeake Energy, Shell Exploration and Production, Hallwood Petroleum and Maverick Oil and Gas. On the Oklahoma side, players include Devon, Newfield Exploration and Tomahawk Exploration Ltd. of Australia.
Not surprisingly, Arkoma shale-gas development is following the existing transportation infrastructure.
“They’re hugging the pipelines -- there’s a network of natural gas pipelines in place and some of the Fayetteville Shale geology is coincident with those pipelines,” Ratchford said. “I suspect that trend of development will continue in the near future.”
Thaeler confirmed that Southwestern Energy is concentrating in near-pipeline areas while taking a “rational approach to stepping out” into other parts of the Fayetteville play.
Development of the Arkoma shale gas will involve “infrastructure hurdles,” according to Ratchford.
Thaeler, who has worked on international development projects, sees similarities in the Arkansas play.
“To me, development of the Fayetteville Shale is much like an international project,” he said. “We’re in an area that doesn’t have a lot of oil and gas infrastructure.”