Viability Of Brown Dense Oil Field a Mystery

(Note: A correction has been made to this story. See end of story for more.)

In the wake of the natural gas boom in north-central Arkansas, residents near the Louisiana border are hoping for a similar bonanza in the oil-rich area known as the lower Brown Dense formation.

So far, however, it's simply not clear whether there's enough oil trapped in the carbonate mudstone to be worth the millions of dollars it costs to sink each well.

Southwestern Energy Co. of Houston went on a leasing spree in the Brown Dense a couple years ago, spending some $195 million to lease mineral rights on 520,000 acres across the formation. It's completed one test well so far and has a permit for a second.

Cabot Oil & Gas Corp. of Houston holds 13,600 acres in the play. It has reported some results from its test well, but the drilling is not yet completed. Weiser-Brown Operating Co. of Magnolia also has a well.

Each well drilled deep into the formation costs between $3 million and $5 million, according to Ed Ratchford, senior petroleum geologist at the Arkansas Geological Survey.

"By the numbers I had heard, Southwestern needs 400 barrels a day to make [its well] feasible," said Columbia County Judge Larry Atkinson.

Southwestern reported in February that its first well had a peak production rate of 103 barrels over a 24-hour period. In April, Cabot reported peak production of 206 barrels per day from its initial well.

(Click here for a sidebar on barrels and other industry terminology.)

"It's hard to tell on the standpoint of what a good well would be in the Brown Dense," said Larry Bengal, director of the Arkansas Oil & Gas Commission. "Even though a well may produce several hundred barrels of oil per day, if the drilling and production costs exceed the viable returns on investment, that wouldn't be considered an economically viable well. All those are unknown at this point in time."

"There is a period of time where they can examine, research, tweak and refine the whole completion process of the well before they put it online and it starts to produce," Ratchford said. "That's where we're at right now."

Bengal said companies would now be experimenting with different completion techniques and deciding on the optimum drilling completion cost.

The analysis, Ratchford said, can take months before true production is seen. He estimated the results wouldn't be known until the end of the year.

A History of Oil
It's not the first time south Arkansas has seen oil interest, of course.

"The Brown Dense is the lower part of the Jurassic Smackover formation," Ratchford said. "The upper Jurassic Smackover formation is part of a zone up there called Reynolds oolite. Historically, there's been a lot of production at the upper Smackover."

The whole formation lies north and south of the Arkansas-Louisiana border.

In the early 20th century and beyond, oil barons drilled conventional wells in the more accessible upper Smackover, and because of the rock's natural porosity and permeability - or its internal empty space and the interconnectedness of that empty space - the oil flowed readily. El Dorado, among other towns, blossomed around that production.

But deeper down in the lower Smackover is carbonate mudstone.

"Its permeability and porosity is about like a slab of concrete," Ratchford said. "It can have a lot of oil still in place, but because the rock is so tight, it doesn't give up that oil easily."

The first test of the Brown Dense was a vertical well drilled in 2008 by Border Exploration LLC of Lafayette, La. That well is now plugged and abandoned, and Ratchford noted that the Geological Survey was studying some of the core extracted from the well. When complete, that study will reveal information about the Brown Dense reservoir and assess its resources.

"We also have some proposals to work with the industry that have not been approved yet," he said.

Since then, technological innovation has given energy companies the ability to hydraulically stimulate the stone, inducing millions of tiny fractures that increase its porosity and permeability. The fracturing technique, commonly known as "fracking," is similar to the technique used by Southwestern and other exploration companies to harvest natural gas from the Fayetteville Shale Play in north-central Arkansas.

Geologists have understood for decades that valuable minerals were trapped in shale and mudstone, Ratchford said. But until the advent of fracking, the cost of extracting it exceeded the value of the oil or gas.

Ratchford said the Brown Dense was the only area in Arkansas where companies were fracking for oil.

Local Effects
Southwestern's stake in the play is by far the largest.

"They beat the competition out of the gate," said Tom Daily, a Fort Smith lawyer who represents the oil companies.

Unlike the rush for acreage seen in the Fayetteville Shale, other companies didn't race to beat Southwestern for its share.

"Southwestern succeeded in securing such a strong lease position so quickly that I'm sure it discouraged a lot of the potential competition," Daily said.

He noted that because the Brown Dense wasn't as vast as the Fayetteville Shale, it was easier for Southwestern to secure a dominant lease position before other companies realized what was happening.

Southwestern's big stake did have an immediate effect on local landowners. County Judge Atkinson said Southwestern's exploration left Columbia County landowners with a lot of cash they didn't have before. However, Atkinson said the energy companies' exploration efforts weren't as dramatic as he expected.

"They spent a lot of money and leased a lot of land, but I haven't seen as much activity as I anticipated," he said. "I'm not saying it's not coming, but the community expected an overflow of equipment. It hasn't happened yet."

Atkinson is still hopeful, as successful prospecting would "have a domino effect in the community" as newly employed oil workers patronize local restaurants and hotels and companies buy equipment and supplies - the kind of economic activity that started in the Fayetteville Shale about six years ago.

"We are waiting," Atkinson said. "We hope they haven't decided to go anywhere else."

Whether or not the Brown Dense exploration will be another boom for Arkansas is a question that won't be answered for a while.

"We're seeing the very infancy right now of exploration in this play," Ratchford said. "We're pretty sure there's going to be residual oil in the Brown Dense. The question is more of engineering - how are we going to get it out of the rock economically?"

In the best case, Larry Bengal said, the wells will prove the formation to be viable and the energy companies will begin drilling in earnest. Bengal said the worst case would be if only the Louisiana portion of the Brown Dense turned out to be viable, leaving Arkansas dry of the attached economic prosperity.

"That would even be worse than just not being productive in Arkansas," he said.

Now there's not much to do but wait until Southwestern finishes its testing in the Brown Dense. Ratchford said he hoped the exploration proves a success.

"We're still importing 50 percent of our nation's oil," he said. "Don't ever forget that."

(Correction, June 6, 2012: The headquarters location of Border Exploration LLC was incorrect in the original version of this story and has been corrected.)