Posted 8/19/2013 12:00 am
Unsuccessful attempts to strike oil in the Brown Dense formation in Arkansas aren’t stopping Southwestern Energy Production Co. of Houston from trying again.
On Aug. 1, Southwestern Energy received approval from the Arkansas Oil & Gas Commission to form an exploratory drilling unit to drill for oil on about 640 acres in Columbia County.
It is unclear when Southwestern will start drilling, though. Christina Fowler, a spokeswoman for Southwestern Energy, said in an email to Arkansas Business that the company was “unable to participate in your requested interview.”
Robert Reynolds, president of Shuler Drilling Co. of El Dorado, said he believes that Southwestern will start drilling by the end of the year.
“They’ve gone to that trouble of getting on the books with the Oil & Gas Commission,” said Reynolds, who has been involved in the oil and gas industry in south Arkansas for about 40 years.
While there is oil in the Brown Dense, “what we don’t know is if it can be removed economically,” Reynolds said.
The Lower Smackover Brown Dense formation covers southern Arkansas and northern Louisiana. The formation ranges in depths from 8,000 to 11,000 feet, according to Southwestern Energy’s website.
Reynolds estimated that drilling a well in the Brown Dense Play costs about $20 million. And to make the project a success, Southwestern would need to produce “several hundred [barrels of oil] a day on a sustained production basis,” Reynolds said. A barrel is the international standard for oil and equals 42 gallons of crude oil.
While no company has seen success on the Arkansas side of the Brown Dense, Southwestern has reported progress on wells in Louisiana.
“We remain very encouraged after watching flattening production profiles” from two of Southwestern’s wells in Louisiana, Bill Way, Southwestern Energy’s chief operating officer, said in an Aug. 2 conference call. A transcript of the call was published on the company’s website. “We’ve seen further encouragement in the completion of our eighth well, the Sharp vertical well [in Louisiana.] … Overall, we remain excited about the Brown Dense and we’re going to continue to work to unlock the commerciality of this Play.”
Ed Ratchford, a fossil fuel supervisor with the Arkansas Geological Survey in Little Rock, said some of the wells in the Brown Dense have produced oil, “but it’s been very meager. … This is not uncommon when a new play is started.”
However, he thinks it’s a good sign that Southwestern applied for the permit to drill on the Arkansas side of the Brown Dense.
“The fact that they’re still testing means that they haven’t walked away from it,” he said. “So that’s a positive.”
Southern Arkansas and northern Louisiana have produced oil and gas since the 1920s. Oil companies used conventional wells in the area to tap the more accessible oil located in the upper Smackover. But deeper down, in the lower Smackover, is carbonate mudstone, a substance whose hardness has been compared to concrete.
Geologists have known for decades that oil and other valuable minerals were trapped inside shale and mudstone. But not until the development of hydraulic fracturing, or fracking, did the value of the oil or gas exceed the cost of extracting it.
In 2008, Border Exploration LLC of Lafayette, La., attempted to break through the Brown Dense formation in Arkansas. Its attempts failed and now that well is abandoned.
In 2011, Southwestern Energy announced it was going to test wells in the Brown Dense area of Arkansas.
The Brown Dense “has the critical properties necessary to be a successful play and compares favorably to other productive oil plays in the United States,” said Southwestern President and CEO Steve Mueller in a 2011 filing with the Arkansas Oil & Gas Commission.
Southwestern has more than 500,000 acres leased in the Brown Dense Play in southern Arkansas and northern Louisiana, making it the company with the most acres leased.
The No. 2 company is Cabot Oil & Gas. Corp. of Houston, which holds leases to fewer than 15,000 acres in the Brown Dense.
About a year and a half ago, Southwestern and Cabot drilled for oil on the Arkansas side of the Brown Dense as part of a test phase.
“Neither of those wells were productive,” said Lawrence Bengal, director of the Oil & Gas Commission. “They’re in temporarily abandoned stage. There’s been no wells drilled since that time.”
In July 2012, Cabot said it had placed on hold its plan to drill.
“Since our investment plans for the foreseeable future are in existing areas of operations ... the limited production coming from our first Brown Dense exploration well does not support its cost and therefore the well was written off,” Cabot CEO Dan O. Dinges said in a 2012 earnings release.
Cabot didn’t return a call for comment.
Southwestern Energy said in its July application to form an exploratory drilling unit in Columbia County that it believes there is “the reasonable possibility” that drilling at the site would recover oil and gas in “paying quantities.”
Southwestern said it would conduct its test with a vertical oil and gas well, evaluate the results and then move forward with a horizontal well.
But the company realizes it might not be easy.
“There is significant economic and mechanical risk associated with the drilling, completion and production of the subject proposed well because the brown dense interval of the lower Smackover has been sparsely tested in only a few wells in south Arkansas,” said a June 24 affidavit by Ken Fritsche, a geologist who was hired by Southwestern Energy. “There have been no commercial completions in the brown dense in south Arkansas to date.”
Fritsche’s affidavit was included in Southwestern’s application with the Oil & Gas Commission. Fritsche, who is a commissioner at the Arkansas Geological Survey, declined to comment for this story.
Ed Ratchford said it’s still not clear if Southwestern is going to be able to extract oil from the Brown Dense, nor is it clear “if this play is going to work out.”
He said the Brown Dense poses a particular problem: If companies hydraulically stimulate the formation too much during the fracking of oil, they could penetrate a brine water reservoir, which would result in the “watering of your well. So you just end up drilling an $8 million hole in the ground.”
Ratchford said he didn’t know how much brine water was in the Brown Dense, but it was millions of gallons.
“There is quite a bit of science to this,” Ratchford said. “People think you basically just drill a hole in the ground and it’s either there or it’s not. That’s not what we’re talking about here.
“We know that there is oil in that formation,” he said. “Getting it out, being able to recover it is another story.”