Interest is growing in drilling the Austin Chalk formation, with oil and gas companies hopeful that applying the latest unconventional resource development technologies can open a new chapter of expansion in a historically prolific play that dates to the 1920s.
Much of the new drilling is in areas of the Chalk that overlie some of the most active parts of the Eagle Ford Shale play in south Texas. Drillers there are taking advantage of the additional stacked play opportunities that can often be drilled with the same rigs and crews they are using in the Eagle Ford and sometimes in the same well. Some operators may have also drilled in the Chalk during the depths of the industry downturn to hold leases and temporarily defer deeper Eagle Ford wells.
The Austin Chalk extends from Mexico across south and east Texas and a large portion of Louisiana to Mississippi. The history of the Chalk play has seen several booms, the last one coming in the 1990s with the introduction of horizontal drilling. Cumulatively, the formation has produced 1.7 billion BOE with approximately 9,500 wells having been drilled there.
Abundant Resources
There is good reason to believe that abundant oil and gas resources remain in the Austin Chalk. The United States Geological Survey released a study of four Austin Chalk-area assessment units (AUs) in 2010 that estimated mean undiscovered resources for the Austin Pearsall-Giddings AU of 879 million bbl of oil, 1.3 Tcf of gas, and 106 million bbl of natural gas liquids (NGLs). Three other AUs were estimated to hold a combined mean 78 million bbl of oil, 2.3 Tcf of gas, and 257 million bbl of NGLs.
Among the most active participants in the latest Austin Chalk play have been EnerVest, EOG Resources, Encana, and Murphy. Other companies active in the Chalk include GulfTex Energy, ConocoPhillips, Devon Energy, Marathon, Abraxas Petroleum, and Chesapeake.
EnerVest, which acquires, develops, and operates oil and gas fields on behalf of its institutional investors, is the largest producer in the Austin Chalk. The company built a substantial position there beginning with its 2007 acquisition of Anadarko’s holdings in Texas’ Giddings field, which has been producing since the 1930s. EnerVest’s move into the Chalk came years before most other current players.
In the Giddings field, as in certain other parts of the Austin Chalk, the formation lies above the Eagle Ford. But Eagle Ford development has been minimal there, compared with core Eagle Ford activity taking place from 20 to 80 miles southwest of the field.
Expanded Footprint
The company has since expanded its Austin Chalk footprint. In three separate transactions in 2015–2016, EnerVest acquired more than 13,000 acres concentrated in Karnes County, Texas, which is also in the heart of Eagle Ford activity. The acquisitions brought in a combined 875 drilling locations and 15,900 BOE/D of production.
“This is a great time in the commodity price cycle to buy oil assets, especially in the core of one of the hottest plays in the US,” said EnerVest Chief Executive Officer (CEO) John B. Walker as the last acquisition was completed. “With stacked reservoirs of the lower Eagle Ford, the upper Eagle Ford, and the Austin Chalk, we see plenty of development opportunities at today’s prices.”
EOG, also a major Eagle Ford player, has assumed a high profile in the Chalk since taking a position there in the first quarter of last year. Two Karnes County wells in particular raised eyebrows in 2016. The Leonard AC Unit 101H yielded a 30-day initial production (IP) rate of 2,715 BOE/D, and the Denali Unit 101H yielded a 20-day IP rate of 3,130 BOE/D.
Cracked the Code
“We discovered a new geologic concept in an existing play,” said Bill Thomas, EOG CEO. “Our team at EOG has cracked the code on how to make our particular footprint in the Austin Chalk a top-tier horizontal play, earning returns on par with the Eagle Ford, Permian, and Bakken.”
Not surprisingly, the company was vague about the code-cracking geologic concept. David Trice, executive vice president of exploration and production, credited development of the concept to “proprietary petrophysical analysis” and said the new approach in the Chalk has enabled EOG to “drill prolific wells consistently.”
Trice continued, “Our high-density completions create complex fracture systems close to the wellbore, significantly improving well performance. Also, like the Eagle Ford, the Austin Chalk benefits from the detailed work we conduct to determine the best target. The chalk can be as thick as 140 feet in some areas, but our targeting efforts keep the drill bit confined to, at best, 20 to 30 feet of rock.&rdquo
Premium Wells
EOG in 2016 began to focus on drilling “premium wells,” defined as those that will produce a minimum direct, after-tax return of 30% at an oil price of USD 40/bbl. Nikolai Gouliaev, who analyzes the upstream oil and gas industry for the investor website Seeking Alpha, pointed out that “EOG’s Austin Chalk wells outperform the ‘premium well’ definition by a wide margin.”
Gouliaev compared Karnes County Austin Chalk wells completed in 2016 with EOG’s Permian Basin wells, at an assumed price of USD 55/bbl, based on historic decline curves, oil/gas/NGL price differentials, gas/NGL splits in well output, wellhead taxes, and lease operating expense per BOE.
Notwithstanding Thomas’ statement placing the Chalk wells on a par with the Permian, Gouliaev calculated that the higher estimated ultimate recovery (EUR) of the Austin Chalk wells in bbl of oil—based on a markedly higher oil cut—more than offsets the higher EUR of the Permian wells in BOE. The Chalk wells will pay back their investment sooner than the Permian wells, he estimated.
EOG completed 14 net Austin Chalk wells in 2016 and is set to complete another 25 this year.
Encana, working from its Eagle Ford position, likewise made its initial foray into the Austin Chalk in 2016. The company’s first two wells, 7H and 8H with lateral lengths averaging 3,400 ft, yielded 30-day IP rates (IP30s) of 2,000 BOE/D and 3,100 BOE/D, respectively, with oil comprising 80% of production. Over 90 days, the wells sustained IP rates of 1,800 BOE/D and 1,550 BOE/D, respectively.
Just Getting Started
The company appears to be just getting started. Following its five-well Austin Chalk program in 2016, Encana plans to drill 10 to 15 wells there this year. Its newest well delivered an IP30 of 1,000 BOE/D from a Karnes County location 25 miles from the 7H and 8H wells at the other end of the county, suggesting a strong potential across the company’s acreage.
In its February Form 8-K Report to the United States Securities and Exchange Commission, Encana said it had lowered drilling and completion costs 23% year-on-year in 2016. With new completion designs for enhancing well performance, the company said, “there is potential to further expand …. premium-return well inventory” across the Austin Chalk play.
In an April investor presentation, the company estimated a potential 50 premium wells in its Chalk inventory to go along with 130 in the lower Eagle Ford. Encana considers premium wells as those producing a 35% after-tax return at a USD 40/bbl oil price. IP30 and IP180 type curves for the premium wells showed the Chalk wells to be equal or superior to those in the Eagle Ford, and the Chalk wells had the higher EURs in bbl of liquid and BOE.
Murphy moved into the Austin Chalk with a successful well in late 2015, expanding from its base in the Eagle Ford. With two subsequent wells, the company reported additional upside potential. Plans call for eight wells in 2017.
The company’s Chalk wells in Karnes County have been trending above type curves. And Murphy says it continues to make technical advances by optimizing landing zones with petrophysical analysis and enhancing completion designs and initial flowback operations.
Successful Wells
GulfTex has participated as an interest owner in a number of the EOG-operated Austin Chalk wells but also has drilled some successful wells of its own there. The company’s 2016 Moczygemba Unit 103H and 104H wells achieved respective IP30s of 3,687 BOE/D (82% oil) and 3,775 BOE/D (59% oil).
Privately held GulfTex builds oil and gas asset portfolios, structured as companies, and periodically sells them to benefit its private-equity investors. In the second quarter of 2016, the company sold GulfTex III to EnerVest (one of the transactions discussed above), which comprised a significant portion of GulfTex’s Eagle Ford and Austin Chalk assets.
However, the company retained some 65% of its acreage in the plays, which is being drilled and developed to build GulfTex IV.
Very Strong Early Results
ConocoPhillips has been drilling and evaluating the Austin Chalk since last year in connection with its overall position in the Eagle Ford. In a November 2016 investor presentation, Al Hirshberg, executive vice president of production, drilling, and projects at the company, said that some early data “shows very strong results with 5-month cumulative production levels that are above both the upper and lower Eagle Ford reservoirs in the same area. So the Austin Chalk clearly presents some upside across parts of the Eagle Ford area.”
The company reiterated its encouragement about the Chalk in an early 2017 presentation and said it will continue drilling and piloting there to assess the resource potential.
With a number of companies drilling successful wells and envisioning upside in the Austin Chalk, it would not be surprising to see continued expansion there. However, with the Chalk’s history and the industry’s recent accomplishments of pumping new life into longstanding US onshore plays by applying updated unconventional drilling and development methods, it is an enticing question whether the Chalk could see a revival on the scale of its 1990s surge or earlier booms.
Could the experience in the Permian Basin or Oklahoma’s SCOOP (South Central Oklahoma Oil Province) and STACK (Sooner Trend, Anadarko, and Canadian/Kingfisher counties) plays be replicated? Knowledgeable people don’t speak with certainty on such things, but one such person who strongly believes the industry should test the revival hypothesis is Tony Maranto, executive vice president and chief operating officer at EnerVest. He joined the company last August after more than 20 years with EOG, mainly focused on Oklahoma, and has 35 years of industry experience.
Revival Potential
In January, Maranto gave a talk on the Austin Chalk to the SPE Gulf Coast Section’s Business Development Group. Stressing that he was giving his own views and not necessarily those of EnerVest, Maranto said there is the potential for a revival if the industry can view the Austin Chalk through “a fresh set of eyes.”
In unconventional exploration, Maranto said, “you start where oil and gas are already produced.” The Austin Chalk should be viewed in light of other legacy conventional plays that have been revived through “multistage, high-density stimulation” of source rock, or rock juxtaposed to it, such as the Delaware Basin in the Permian and the SCOOP and STACK plays, he said.
Maranto gave numerous examples of Austin Chalk wells from the 1970s onward, in which EURs were greatly enhanced by the use of evolving stimulation technology, which since the 1990s was coupled with horizontal drilling.
Chalk operators have traditionally targeted large natural fracture networks, which have been highly productive under conventional drilling and completions. But for high-density stimulations, these fractures pose problems of fluid loss and unwanted gas influx, and Maranto recommended targeting less-fractured sections of the Chalk.
“We have to change our perspective,” he said. “We have to understand the properties of the Chalk that are comparable to other plays that work.” Maranto’s message was not that a revival will happen if these steps are taken but that it may happen.
It remains for the industry to see what it can yet achieve in the Austin Chalk. But the last chapter has probably not been written.
For Further Reading
SPE 145117 Understanding Production from Eagle Ford-Austin Chalk System by R. Martin, R. Malpani, G. Lindsay, Schlumberger et al.