Producer pioneers in the Tuscaloosa Marine Shale (TMS) are finally figuring out how best to wring large volumes of Light Louisiana Crude from the oil-rich play’s notoriously complex geology. But are they “cracking the code” at just the wrong time, when crude prices are crashing and investors are shifting their focus to shale-play sweet spots with low drilling costs? Some say no; that fine-tuned completion formulas, declining drilling costs and a favorable tax environment make the TMS a “go”, even in these tough times. But others say yes; that it’s time to move on from the TMS, at least for now. Today we revisit the still-promising TMS in central Louisiana and southwestern Mississippi, and assesses whether the play many consider to be the next big thing needs to wait for higher oil prices to shine.
The TMS in southwestern Mississippi and eastern Louisiana has been on oil producers’ radar for some time now. As we said a year or so ago in the First Episode of Frackin’ the Shale in Tuscaloosa—Is TMS the Next Bakken?, the tricky geology of the TMS for decades scared off most drillers and frustrated the few that tried. The TMS is a sedimentary rock formation more than 10,500 feet below the surface, only 100 to 250 feet thick, and packed with fine-grained, organic-rich sedimentary silts and clays with low permeability. And it’s a hydrocarbon bonanza—one that had been particularly attractive in the recent era of $100/Bbl crude. The play is 92 to 95% oil (with a 38 to 45 degree API); the balance is high-BTU natural gas.
Despite the drilling and other challenges the TMS presents, the promise of 7 billion barrels of oil (and probably more!) within spitting distance of major Gulf Coast terminals and refiners has been too good for some plucky explorers and producers to pass up. In the past few years they have been establishing the boundaries of the TMS’s fairway, tweaking their completion formulas, reducing their drilling costs, and increasing the estimated ultimately recoverable (EUR) oil from TMS wells—all while accelerating their learning curves. In Episode Two, we zeroed in on the production gains being realized by the small set of key players in the TMS—EnCana, Goodrich Petroleum and Sanchez Energy among them (see Figure #1 to see who’s where)—as they came to understand the benefits of longer laterals and of completions enhanced with the increased use of sand, clay stabilizers and proppant—all to help prevent the softer rock and clay-like material in TMS from self-sealing (see Getting Proppant to the Wellhead for more on proppant materials).
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About the song
“Timing Is Everything” was sung by Trace Atkins on the soundtrack for the 2010 movie “Country Strong”, which co-starred Tim McGraw and Gwyneth Paltrow.
Comments
With aggregate acres under lease for all the TMS operators the lease capture phase of the play will require approximately 560 wells to HBP. To date the total wells completed, drilled and drilling by all operators is 89. Even those companies with lease extension options and three or more years of effective lease terms will have a difficult time drilling the number of wells required to HBP their leases if they delay development for any appreciable length of time. The 89 TMS wells to date were drilled over five years. To complete lease capture given a four year horizon would require an average of ~118 wells per year.
Well cost is a critical metric. Although TMS operators project well costs of $13MM with the potential for cost reductions to reach $10MM, the data indicate that current well cost is closer to $15.5MM. Although development or in-fill wells may be drilled in that $13MM to $10MM range eventually, the approximately 470 wells required to complete lease capture are exploratory wells with higher cost. The $15.5MM current best case scenario cost for exploratory wells is optimistic considering the fact that recent AFE's for some wells have been as high as $19MM.