Sugarloaf Prospect >> (B) – Eagle Ford Shale
The hydrocarbons found in the Austin Chalk were originally generated in an underlying shale system called the Eagle Ford Shale, which is known as the ‘source rock’ for this reservoir. Most shales have a high clay content which limits their efficiency as potential productive reservoirs in their own right. However within a geological time frame these source rocks allow the hydrocarbons they generate to leak out and in classic chalk fields like Brookeland they are trapped in the overlying reservoir quality Austin Chalk.
In the USA a number of shale plays have recently been developed, where differing geological composition and technology advances has allowed some of the source rocks to be developed as reservoirs in their own right. As industry understanding improves, the characteristics that allow any given shale to be developed as a reservoir are being better understood. Shale plays such as the Barnett, Fayetteville, Bakken and Haynesville are now significant contributors to the US domestic gas production figures. In the last year it has become clear that many gas shale developments have a minimum commodity price threshold for development. However, based on 2009 activity within the Eagle Ford Shale, this threshold was not reached even with the low gas commodity prices observed during this period.
Reports from the Austin Chalk discovery well Sugarloaf #1 made reference to an underlying formation that also portrayed reservoir quality as well as having a high organic content. At the time the participants at Sugarloaf referred to this zone as being the ‘New Chalk’ because of the calcareous chalk inter-bedded with the organic shales that were seen in core and on electric logs taken whilst drilling. During late 2008 and all through 2009 a number of large US companies have made announcements of a new shale play within which they have made substantial land investments. This shale play trend has been named the Eagle Ford Shale and Sugarkane is located centrally within it.
A number of companies have issued public statements and presentations outlining their participation in this play and whilst it is still in an appraisal stage the reported results indicate that the trend may prove to be one of the premier shale systems in the USA. This ‘title’ has recently been held by the Haynesville Shale. Straddling the Texas/Louisiana border the Haynesville Shale has been demonstrated to be prolific with high initial production rates (IP) of dry gas and recoverable volumes that justify the relatively high cost of drilling to these deeper, hot and high pressured shales.
A number of large US domiciled and listed entities have recently announced their participation within the Eagle Ford Shale play. Pertinent details of their interests are summarised in the diagram above.
The largest amount of publicly reported information close to the Sugarkane Field is from Petrohawk with their acreage being located directly to the southwest of the Sugarkane Field following the Eagle Ford trend. Petrohawk has reported a budget of US$120M for 2009 for the Eagle Ford play with 29 wells projected to be drilled before year end. In November 2009 Petrohawk reported they have sixteen operated wells on production with an average initial rate of 7.8 mmcf/d and 143 bpd condensate (8.7 mmcfe/d or 10.0 mmcfe/d using a 6:1 or 15:1 ratio for condensate respectively). They have continued to acquire land on trend towards the Sugarkane field in a venture with Swift Energy.
Petrohawk estimate an average recovery of 5 to 6 Bcf / well and have achieved a significant reduction in well costs over the course of the drilling program to date. Petrohawk has also noted an increasing trend of condensate content in the northeast of their acreage (moving towards the Sugarkane Field) with the closest well to the Sugarkane Field demonstrating a condensate to gas ratio of in excess of 100 bbls / mmcfg. Petrohawk have also stated that core analysis indicates that the Eagle Ford is one of the highest quality shale reservoirs discovered to date in the US and that it is proving to be as important as their Haynesville interests where they are acknowledged as one of the most successful participants to date.
The companies that have made such announcements include Petrohawk Energy Corporation (NYSE:HK), Murphy Oil Corporation (NYSE:MUR), Anadarko, Apache Corporation (NYSE:APA), TXCO Resources (Nasdaq:TXCO), St Mary’s Land & Exploration Company (NYSE:SM), Pioneer Natural Resources (NYSE:PXD), EnCana Corporation (ECA:TO) and of course ConocoPhillips Company (NYSE:COP) who operate the adjacent acreage within the Sugarkane field and have reported holding 300,000 acres within the Eagle Ford trend.
Announcements have also been made relating to nearby Eagle Ford Shale wells which are located just outside the Sugarkane Field. Pioneer released the results of the Sinor #5 well in Live Oak County which is some 18 miles southwest of the Sugarloaf #1 well (Source: Press release Oct 26 2009). The well has reported initial rates of 8.3 mmscf/d of gas and 500 bpd of condensate from a 2,600 ft horizontal section. ConocoPhillips also provided the results of their Bordovsky #1H well as having initial production of 4 mmscf/d of gas and 1500 bpd of condensate. This well is 18 miles to the northeast of the Sugarloaf #1 well and has exhibited a high condensate ratio which is comparable to that observed in Sugarloaf AMI production to date (Source: Q3 Earnings conference call Oct 28 2009).
It is key to note that in a commodity price environment of depressed gas prices, the Eagle Ford shale is one of the few plays where activity is being ramped up rather than reduced due to economics. This commercial distinction is even greater for Sugarloaf where the high condensate ratio significantly adds value to the field.