Latest Intelligence: How do we stand on the new Mississippian play?

Don Warlick, WarlickEnergy

Located in North-central Oklahoma and South-central Kansas, the Mississippian play (also called the Mississippi Lime) has produced from thousands of vertical wells for more than 50 years but has not stirred much interest for increased conventional development. Well results in this area that include the Mississippian were not as robust as those in other plays.

That’s all changed now, and in comparison with growing wet shale plays the Mississippian has a number of attractive features that are boosting production economics and inciting more attention this region.

The play is shallower than most unconventional shales so requirements for drilling, fracturing and some downhole services are lessened.

  • Drilling costs here can average $2.9 to $3.5 million per well as compared to an average of $7.7 to $10 million in the Bakken.
  • Acreage in the area is not expensive, recently averaging ~ $3.3K per acre. In the Eagle Ford, an equity firm recently paid $25K per acre in a participation agreement while in the Bakken an E&P company paid ~12K per acre.
  • Given the development history here, there is established transportation infrastructure, skilled workers, and midstream services.
  • There’s also excellent potential with current oil-in-place estimates at 5.4 to 5.9 BBOE.

It takes aggressive players to drive development in new or rediscovered oil and gas plays, that’s been true for all US shale development since 2004. In the Mississippian there are very active E&P drillers, large and small:

  • Oklahoma-based SandRidge Energy was one of the first to move to the Mississippian, with 900,000 acres and plans to drill 380 wells here in 2012. They report that net asset value attributed to the region containing the Mississippian could be ~ $15 billion. Their typical completion has a 4,000-foot lateral with 8-10 frac stages and expected EURs of 456 MBOE per well based on 30-day average IPs of 275 BOEPD.
  • Eagle Energy holds ~75,000 net acres in northern Oklahoma. Although they originally focused on gas production from the underlying Hunton Limestone, in May 2010 they shifted focus to the Mississippian. It was a smart move: Their highest-performing well had an IP rate of 2,224 BD and 4.7 MMCF of gas. Eagle says their wells cost around  $3.4 million each with net present value of $7 million, resulting in an initial 83% ROR and total ROR of 130%.
  • PetroQuest Energy holds 27,000 net acres prospective for the Mississippian, has finished drilling five wells in Oklahoma and reported initial 24-hour production results on two wells completed in this play, one with 320 BOED and 81% crude oil and the other with 661 BOED and 71% crude oil. They are operating two rigs here in 2012.
  • Osage Resources is producing 400 BOED, consisting of 25% oil, 25% natural gas liquids  and 50% natural gas. They plan to drill an average of 30 horizontal wells a year in 2012 and beyond with targeted production of 14MBOED by 2014.
  • Cheasapeake has ~2 million net acres in the play, operating 18 rigs in this area. They reported production of 20,000 BOED in 2Q2012, doubling year-over-year. Their production profile is 39% oil, 12% natural gas liquids and 49% natural gas. 
  • Superior Oil & Gas is concentrating its efforts in this play, having secured an acreage position in Oklahoma with an option to purchase oil and gas leases on 15,000 contiguous acres in Kansas.
  • AusTex Oil Limited holds 6,000 acres in the play and wants to expand its leasehold to as much as 25,000 acres.
  • Range Resources is marketing its Ardmore Woodford acreage to help finance their plans for increasing development in the Mississippian. They recently announced well stats that included one peaking at 1,363 BOEPD and a second peaking at 1,950 BOEPD after the company moved from 12 frac stages to 17.
  • A number of big players have Mississippian plans too. Some leading companies holding acreage positions in the play include Apache with 580,000 acres, Devon 545,000 acres, Encana 360,000 acres and Repsol 363,000 acres (involved in their $1 billion joint venture with Sandridge).

Although the Mississippian yields high oil production there is also significant accompanying water production. For example Sandridge reports an average of 2,000 to 3,000 barrels of water per day during the first 30 days of production per well. As a consequence there are growing water and fluids management considerations for the Mississippian.

But that’s also good news -- Oklahoma has experienced drought conditions so some companies are using produced water to supply hydraulic fracturing needs, further adding to cost-effectiveness of Mississippian operations in the area. Related to management of growing produced water and frac flowback volumes, there are continuing additions to the area network of disposal wells, typically targeted for the Arbuckle Group formation.

Quick conclusion:  Watch for more improvements in cost efficiencies and economics, especially in comparison to currently-expanding unconventional shale plays, that are adding momentum to Mississippian development.

About the author
Don Warlick is president of WarlickEnergy (www.warlickenergy.com), a Houston-based energy intelligence firm. The company publishes a series of special reports on each of the leading US unconventional shales and also provides market research services addressing North American and International oil & gas markets.

 

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