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Onshore exploration rebounds in the United States!
Never thought you'd live to see the day? Given enough time, strange things will happen.
Capital for new exploration projects is flowing back into the industry, thanks to lofty oil and gas prices.
Playmakers in the Mid-continent can sell deals again, and they're generating prospects in ways different from the last oil boom.
With apologies to the New York Yankees: It's a whole new ball game.
Smiles All Around
Talk to independent playmakers who've been to NAPE and APPEX recently. They're excited about the market for U.S. prospects.
"In the past six months people have started to believe in the higher oil prices," said Ted Beaumont, an independent geologist in Tulsa and former AAPG science director.
"If prices stay where they are, in a year things are going to be crazy," he predicted.
Talk about a change.
Activity dropped off the map during the last price downturn, when oil dipped to $12 a barrel, he said. Playmakers couldn't give away a prospect, much less sell one.
"It put such a pall over the industry, no one wanted to do anything. A lot of people got out of the business," Beaumont said.
"It was just a bad time, and we haven't fully recovered from losing a lot of good people," he added.
Beaumont looks for plays primarily in East Texas, the Texas panhandle and Oklahoma, but branches out to other areas of the United States for promising prospects.
Today, he notes, some land that might have leased for $100 an acre a year ago is going for $300 an acre.
"One thing I'm starting to worry about is that things will get too crazy," he said, "just like they did in the last boom."
Technological Edge
Most U.S. playmakers no longer feel confined to a narrow geographic region, since knowledge and technology can be applied anywhere.
"Today, I think the specialization is more in specific areas of technology," said AAPG member Charles Wickstrom, managing partner for Spyglass Energy Group in Tulsa.
"I have particular expertise in certain areas of technology, and I apply that across the country," he said.
Wickstrom founded Spyglass with fellow geologist (and AAPG member) Chris Johnson in 2003, and they've enjoyed continued success.
Much of that success comes from applying advances in technology, according to Wickstrom, who entered the industry in 1978.
"At that time, we were doing seismic stratigraphy with 100 percent shothole dynamite," he recalled. "It was successful to an extent, to the usefulness of the tool.
"Then in the early 1980s, we moved into 2-D or CDP, common depth point seismic," he said. "That allowed us to do better resolution on stratigraphy and a little better on structure."
But it was the advent of 3-D seismic acquisition that truly altered the picture for onshore playmakers, Wickstrom said.
"In the late '80s and early '90s, we moved into 3-D," he noted. "That really changed the whole spectrum of exploration onshore."
It also changed the economics of exploration, moving investment risk away from drilling the well and toward shooting the 3-D seismic, Wickstrom said.
Costs associated with horizontal drilling make the exploration/development process ever more capital intensive.
"In the last six or seven years, we've moved into applying horizontal drilling to increase our recovery on a field-wide basis," Wickstrom said.
"All of this calls for an increased demand on capital. We've moved away from the days of drilling one-well prospects," he continued.
"To make the economics work, we have to have significant acreage, enough to drill multiple development wells."
Thinking Big
Doug Strickland is exploration manager in Oklahoma City for Wolverine Gas and Oil, which has headquarters in Grand Rapids, Mich.
Wolverine made headlines recently with its major Covenant Field discovery in Utah.
"We think we've stumbled into another billion-barrel hydrocarbon province," Strickland said.
Very small independents that develop plays aren't thinking small at all when it comes to leasing.
Wolverine targeted 500,000 acres in the Utah play, 350,000 acres for a Kansas coalbed methane project and 120,000 acres in a Rocky Mountain play, he said.
Strickland, an AAPG member, cited advances in technology and technique for changing the ways plays are developed today.
"One of the significant things that has changed is the petroleum system information, and the geochemistry that goes along with it. Today we can run isotopes. We can do fluid-inclusion work," he noted.
"The second big difference is the improvement in seismic," he said. "The prestack depth and time migration has really helped."
But when Strickland begins to identify a play, he falls back on the tried-and-true approach of researching the published literature.
"I go through a tremendous amount of literature every week," he offered. "There has been a lot of good work done in the past."
Wolverine takes time to examine and re-examine prospects, adding seismic as a next step for analysis.
"We'll spend two or three years on a single area," Strickland said. "After we've developed several good lead areas, we use geophysics.
"We buy trade data to start with, and we'll oftentimes shoot data, 2-D and 3-D," he continued. "In exploration plays, we've mostly been using 2-D."
Despite the scope of some of its projects, Wolverine is happy to put a deal together and operate the exploratory well, according to Strickland.
"When we sell deals to majors, they typically like to operate. But there again, we're a little company putting together these very large plays, and they don't seem to have the wherewithal to put them together," he said.
The industry's risk-averse view of domestic exploration has affected its ability to generate new plays, Strickland believes.
"It's an industry where it's been mostly acquisition-divestiture, development drilling, down-spacing," he commented.
Strickland thinks larger companies "simply aren't managed for new plays."
"Some of the bigger companies no longer have the expertise," he said. "They're very focused, mostly on development activity -- there just isn't time to examine regional (exploration) plays."
Computing Power
Don't overlook the importance of computing power that allows small companies and independent playmakers to be competitive.
As a productivity tool, the computer rules.
"We've greatly decreased the number of staff required," Wickstrom observed. "When I started, we needed one draftsman for every three geologists or engineers. Today, we have no draftsmen."
Computer-assisted exploration now affects every part of the industry and everyone left in it.
"In 1978, we had -- at best -- a handheld calculator," Wickstrom added. "Today I have three computers in my office and one at home."
Data transmission, computer access and the Internet also can give investing partners a direct look at drilling progress on a play, he noted.
Spyglass captures real-time drilling data and has it relayed by satellite for remote monitoring, according to Wickstrom.
"Everybody who has an interest in the well can be given a password, and they can get on the Internet and watch the well being drilled," he said. "That's been a big benefit for us."
Independent geologists also benefit from the technology leverage enjoyed by small companies.
"We know several of them, and we recently have taken a geological concept developed by two geologists working together," Wickstrom said.
Playmakers with a good prospect don't even need seismic to sell the deal, although having it doesn't hurt, according to Beaumont.
"We're using attribute analysis. You may be looking at something that's too subtle for the seismic to show," he said.
"My dad's a geologist and I'm a geologist," Beaumont said. "His generation didn't have the well density in Oklahoma that we have now, which gives you a better chance to find stratigraphic traps."
Tipping Point?
Is U.S. onshore exploration really back?
Let's just say, things are better than they were.
"It's still very hard to sell a true wildcat right now," Beaumont said. "It's been that way for 20 years."
Industry investors continue to prefer a play that extends a field, or one that expands a proven concept based on nearby production.
"That's the main thing people have sold for the past 20 years. It's always been easier to sell that, and it still is," he said.
But with today's higher prices, the playmaker with a quality prospect can ask for a much better override and a nicer bonus, according to Beaumont.
"At APPEX, I heard from a lot of people looking for deals that there were not a lot of deals to choose from," he said.
"The other side of it is that more people are looking at prospects and want somebody to do due diligence," which creates even more opportunities for the independent geologist, he added.
Wickstrom sees the exploration environment changing as higher oil and gas prices attract new capital investment.
After years of frustration for independent playmakers, the industry might be near a tipping point.
"What we're seeing right now," he said, "is a shift from the industry looking for capital, to capital coming in and looking for deals."