Texas independents keep gestating low permeability oil and gas plays with superior economics at an impressive rate. The Eagle Ford and the Granite Wash may no longer be the singular cases that people outside the Texas oil and gas fraternity have maintained, in trying to diminish the strategic importance of such shale, tight gas and similar low permeability, large resource plays. And not just for the U.S. E&P business, but for global oil and gas production.
The more technologically and operationally challenging an oil and gas resource, the more abundant and geographically dispersed it seems to be- based on evidence so far from many countries and basins. In Texas, Louisiana, Arkansas, New Mexico, Oklahoma, Pennsylvania, Michigan at least (and even in parts of Southern California and Europe)) the old is new again. Mature provinces are frontier plays.
If the Eagle Ford is like a sash across the breast of Texas from Louisiana to Mexico, so too is the emerging Wolfcamp like a medallion across West Texas (over 30 counties) and Lea and Eddy counties across the state line in New Mexico. The Wolfcamp is an oil and gas zone (a gassy shale with high liquids) directly below the Spraberry Trend. This is a very significant oil field with rapidly growing production and drilling activity. Some people call the Wolfcamp the Wolfberry Trend; others say it is the Wolfcamp Oil Shale so they can liken it to the Bakken. To the west of the Wolfcamp (and above it) is the now very popular Bone Spring Shale which is seeing weekly increases in investment, drilling and production from three oil producing zones (includes the Avalon/Leonard which has attracted some of the largest independent E&P companies).
The Wolfcamp, so far, has been identified at depths of 5,000 to 15, 000 feet, with embedded limestones that can be 2,500 feet thick. Approach Resources (AREX), a small independent drilling in the Wolfcamp, calls it a source rock that is “world class” and says it has mineral composition and lithology similar to the Eagle Ford. Pioneer Natural Resources (PXD) is the largest acreage holder and producer in the Spraberry. It plans to drill horizontally in the Wolfcamp. The company says [resources] are widely found across the company’s acreage (Concho and Endeavor are two other significant Spraberry producers).
El Paso Exploration and Production Company, with 170,000 net acres in the Eagle Ford, has acquired 135,000 net acres in the Wolfcamp. The company plans to apply the experience and knowledge gained from its Eagle Ford and Haynesville shale businesses. The company claims 600 Upper Wolfcamp potential drilling locations. In comparing the Wolfcamp with the Eagle Ford El Paso finds, there are well over twice the net thickness and twice the carbon content in the former. This carbon content is about 60% of the impressive Bakken but the thickness is multiples that of the Bakken.
LINN Energy (LINE), an MLP which focuses on long-lived oil and gas assets, has identified 400 low risk locations in the Permian Wolfberry (it is not clear if this means the Wolfcamp proper or some combination of the Spraberry and Wolfcamp).
Chesapeake Energy (CHK) which already has experience in the Eagle Ford, Bone Spring and the Avalon/Leonard is also active in the Wolfcamp and reports a prolific production well there. Devon Energy (DVN) is aiming at the Wolfberry together with the Bone Spring and Avalon/Leonard.
The Wolfcamp is readily accessible to several small, medium and large independents, given its proximity to The Eagle Ford, Granite Wash, Bone Spring as well as its relationship to the Spraberry. If early 2011 drilling results are as good as the industry expects, it will be well-populated by companies that have the resources, relevant knowledge and field service relationships to go from discovery to development very quickly.
These days, the time line from discovering a promising liquids-rich shale play to commercial production has become astonishingly compressed. Independents know that first entry to accumulate a low cost position, rapid response to the specific characteristics of the play, and continual technological innovation are their competitive advantages. Where the pioneering independent goes today, the very large independents will quickly follow and then, with their tremendous talent, engineering, service company and capital resources, the mini majors and majors will arrive. Foreign E&P capital will also be eager to participate to capture both experience and returns. From emergent to core in two years is the new model.
In the past 24 months there has been a tangible acceleration in the discovery and rapid development of shale and tight sands plays in North America, especially plays that have extensive liquids windows. In 2011 this most positive tend shows no signs of abating.
U.S. liquids production is now very likely to be higher over the next five years than it was over the past five years, especially when deepwater drilling regains momentum, perhaps in two to three years. The U.S. is again a frontier E&P opportunity and reality.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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