Tuesday, August 27, 2019

Austin Chalk - Drilling Update

The only people happy with the results in the "updip" region of the LA-EAST Austin Chalk Play so far are those in the saltwater disposal business!  It's not the start that any of us hoped for.  Fortunately, we have some of the best operators in the industry risking their capital to attempt to make this emerging play work.  Not so long ago, there was a time in our industry (pre-unconventional) where we used the term "exploration" for the early "higher risk" phase of the process.  The Wall Streeters are too young to recall those days.

ConocoPhillips just released the results for the Erwin #1.  Like the McKowen #1 and Hebert #1, it is producing primarily water.
Erwin #1 initial potential: 
28 bo, 25 mcf, and 2845 bw
CP 643
GOR 862
Oil gravity: 38
Perfs: 13447-18727 (5280’)

There has not been any official release on the EOG Ironwood 37H-1 results, but word "on the street" is that it's "water plagued" also.

I've shared my post below discussing the post-frac analysis for the McKowen #1.  These four interpretations are all still valid options:

Now with four results in, lets revisit these:

INTERPRETATION #1: The formation is mostly water bearing
The production results to date sure do support this interpretation.  The large unknowns on all of the wells are: how much of the frac water has produced back? landing zone location? How much formation water has been produced?  Frac height? What is the formation pressure?  Only COP and EOG know these answers.  In a normal pressure environment, it's going to be more challenging to get the frac water out of the reservoir.  

The most significant data to dismiss this interpretation is the very consistent high resistivities across the vast area.  A regional map of resistivity conforms extremely well to the depositional basin and decreases quickly and significantly where it should. Secondly, geochemistry data from core on trend with the Erwin #1 illustrates TOC's as high as 2.67%.  The Austin Chalk in the LAMS Stack Play area is a source rock.  The question is, how much is oil and how much is water?

INTERPRETATION #2 : The formation is still producing frac water back
Ditto to my points above. The frac water recovery is unknown. 

INTERPRETATION #3: Low formation porosity is limiting hydrocarbon production
This could be a contributing factor.  I believe that the natural fractures are more of the issue relating to the high water volumes.  In the current "hot spot" in Giddings Field (northwest Washington County) porosities average 7-8.5%.

INTERPRETATION #4: The large proppant frac could have penetrated into a large water-bearing natural fracture cluster
I lean on this interpretation due to the large volume of data in the area supporting the presence of oil in the formation.  All four wells have intersected natural fractures and small faults.  Once you frac up into the higher water saturations, it will be hard to "turn the water off".  Several hundred feet of "wet chalk" exists above the target zone.  The challenge will be designing a frac that stays focused in the bottom 100' of the formation where the oil saturation is highest.  A smaller proppant frac might be the answer. Natural fractures might be the enemy here.  Moving away from the Feliciana Salt Ridge might result in less natural fractures.

With all this said, the key question is whether the operators have the desire to continue the "exploration" era of this play.  Wall Street is not being really friendly to us right now.

Step 1: Determine where the oil/gas is
Step 2: Determine how to extract it from the reservoir
Step 3: Determine how to drill and produce it economically
Step 4: Conduct field wide development

The "updip" region of this play in LA-EAST is on Step 2.  More wells and diverse frac designs will be required.  The TMS is on Step 3.  EOG's 18 day drill on the Ironwood 37H-1 illustrates that they can drill the TMS economically.  Across the US basins, most of the industry (excluding EOG) appears to be stuck on Step 3 at $55 oil.  Much chaos ahead for the industry as a whole.

Tuesday, August 20, 2019