Oil industry’s eyes on Avoyelles’ Austin Chalk wells

'Chalkamania' growing in area

“Chalkamania” is making headlines in oil industry publications and online news sites.

While hope and hype don’t always equal results, experts and observers have reason to be optimistic based on the experience in the old Austin Chalk fields in Texas.

The Austin Chalk formation is a 650-mile long “river” of oil and natural gas-bearing chalk stretching from Texas’ border with Mexico, across the center of Louisiana and into Mississippi.
EOG efforts

In Avoyelles Parish, EOG captured the oil industry’s attention when its Eagles Ranch 14H well near Goudeau -- the first well in the Louisiana Austin Chalk in two decades -- produced 80,000 barrels of oil in 110 days.

This raised expectations that there is more “black gold” to be squeezed out of the ground here.

The well’s production has fallen from a high of 27,609 barrels per month in October 2017 to 7,282 barrels a month in February 2018 -- the latest monthly report available.

Natural gas production had peaked at 29,029 MCF (thousand cubic feet) per month in October 2017 and was only 6,916 MCF in February.

Although cautioning it is “still pretty early” in the company’s efforts, EOG Executive Vice President Ezra Yacob has noted the chalk has produced “some of the most prolific and highest return wells in the company.” Those were in Texas.

An analysis of Austin Chalk wells by Wood Mackenzie Ltd. found the formation’s wells have a history of promising initial results followed by a rapid drop in production. That is especially true on the Louisiana side, the report noted.

“EOG is trying drilling in the Eagles Ranch 14H in Avoyelles - the first modern completion in this portion of the Austin Chalk,” Wood Mackenzie noted. “Early results suggest it could be a breakthrough for Louisiana acreage.”

The analyst said natural fracturing of the chalk formation in Texas resulted in impressive initial production rates, but “the Louisiana landscape is more complex. Economic wells will require a complex interplay of natural fractures and matrix production in just the right balance. “The rock is challenging, so completions will need to be aggressive and costs will be high,” the report added.

EOG plans to complete 25 more Austin Chalk wells this year, with even more growth ahead, Yacob said.

He said working in the Austin Chalk is “not quite as straightforward” as in other formations. “It is different and it’s unique.”

OTHER COMPANIES

There have been leases signed around the parish and oil company representatives doing research in the parish courthouse in anticipation of even more leasing.

If or when that activity will expand or dry up can’t be determined. The companies involved are also not known with certainty, but there are some educated guesses being presented.

Another company working in or near Avoyelles Parish is BlackBrush Oil & Gas, with a well in nearby Rapides Parish.

Torrent Oil has been given a permit to drill in the Woodside Plantation area in south Avoyelles. It plans to reopen a closed well, using new methods to extract the riches it believes are still there.

Lafayette-based PetroQuest Energy has leased about 24,000 acres in this area for future oil exploration.

ConocoPhillips and Marathon have also announced planned efforts in the Louisiana chalk, but it is unclear whether any of their future plans include the stretch in Avoyelles.

Private equity giant Blackstone Group sold royalty rights in the region for over $400 million. Again, it is not known if any of that activity was in Avoyelles.

RISE IN PRICE

The up-tick in exploration reflects the improved health of the oil market, where prices have been near $70 a barrel after a three-year downturn.

Improved technologies -- including hydraulic fracturing, called “fracking” -- has allowed previously inaccessible reserves within the geologic formation to be released.

Drilling in the Austin Chalk began in the 1930s. There was a boom in the formation in the 1990s. After that, exploration moved to the more promising shale formations.

The U.S. Energy Department estimates there are still 4.1 billion barrels of crude oil, 18 trillion cubic feet of gas and 1 billion barrels of natural gas liquids in “the Chalk.”

The Eagle Ford shale formation,which follows much of the Texas chalk band, has about three times those figures.

In the 1990s, conventional drilling in the Austin Chalk produced exciting gushers, but the wells quickly declined. Methods used then couldn’t find the hidden reserves.

With fracking and other “unconventional” drilling methods such as longer horizontal wells and computer-guided drill bits, the chalk was cracked open to release those reserves.

Higher oil prices have allowed drillers to gamble on the notoriously fickle and complicated chalk formation.

With the Texas chalk formation overlapping the Eagle Ford shale in areas, the proximity to pipelines serving Eagle Ford wells has helped reduce costs of the Austin Chalk efforts.

Interest in the Louisiana chalk may wane quickly if oil prices drop even moderately.

The Wood Mackenzie report estimated Louisiana chalk wells could cost $10 million each -- about twice the cost of some Eagle Ford shale wells.

EOG’s well in Goudeau cost about $12.3 million, which includes one-time expenses for scientific testing, Wood Mackenzie reported.

The lure of less expensive, richer oil reserves elsewhere could be the biggest obstacle to bringing the chalk’s reserves to market.

Austin Chalk wells in Karnes County, Texas, need an estimated price of $37 a barrel to break even. Louisiana’s band of chalk needs considerably higher prices to make the effort worthwhile. Right now, it is.

Geologically speaking, Louisiana chalk is about five times less permeable -- or five times more solid -- than the Texas chalk. This means drillers have to “frack harder” to access the oil and gas.

That, in turn, increases the cost of drilling.

If the price-per-barrel drops to a point where exploration companies are losing money or gaining only a small return on their investment, the wells will be capped and the drillers will move on to lower-hanging fruit in Texas.

That’s the oil business.

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