Some plays are waiting to be discovered, but there’s no denying North America has become a treasure trove of natural resources, courtesy of the shale revolution. So where will the industry land its next pile of riches? According to a Global Hunter Securities analyst, five up-and-coming plays appear particularly promising.
“These things are popping up left and right,” according to Mike Kelly, senior vice president and senior E&P analyst with Global Hunter Securities LLC. “At every corner, there seems to be a new play that has a lot of potential.”
Speaking during Platts’ recent North American Oil and Gas Supply Chain conference, Kelly identified a handful of plays that he believes are heating up. They are: the Permian basin, the Tuscaloosa Marine shale, the Wattenberg field, the Utica and the Brown Dense formation.
The group shares a common denominator: It’s unlikely any would be successfully emerging if not for advancements made in horizontal drilling. Thanks to the shale gale, U.S. oil and gas production continues to climb, driven largely by plays such as the Eagle Ford and Bakken.
More names will likely be added to the list of shale heavy-hitters, said Kelly.
“We think oil production is here for real in the U.S.,” he told conference attendees. “We’re not just putting the genie back in the bottle by any stretch of the imagination.”
The Permian basin is continuing to grow, thanks largely to its strong economics and incredible resources. Though it has existed for nearly a century, the Permian experienced a production decline in its conventional days when producers moved away from traditional drilling. The region has today hit another high note thanks largely to advancements in hydraulic fracturing and horizontal drilling.
“The Permian is absolutely red hot right now,” said Kelly. “From Wall Street’s perspective, the Permian has been the place to invest.”
Potential in the area is “massive,” said Kelly. The Permian is often segmented into the Midland and Delaware basins, where most of the rigs are based. Most of the activity has been happening in the southern portion of the basin, though Kelly said activity is beginning to migrate up.
The internal rate of return for Permian oil, at $90 per barrel (bbl.), is about 30% for six of the eight plays in the Delaware and Midland basins. In the Midland basin, where it costs between $5.3 million and $9 million to drill a well, the estimated ultimate recover (EUR) is 450,000 to 650,000 barrels (bbl.) of oil equivalent (Mboe). In the Delaware basin, where wells cost between $4.5 million and $10.5 million each, the EUR is between 300 and 900 Mboe.
“It’s hard not to get excited about the Permian and the Midland basin—and the eastern portion of the Permian in particular—when leaders in the play are throwing out [these] really big numbers,” Kelly said.
“There are a lot of exciting things happening in the Permian.”
A lesser-known oil play that runs through Mississippi and Louisiana also has strong production potential, said Kelly. Speaking of the Tuscaloosa Marine shale, he said area producers could hit the jackpot if the play pans out.
“It has the potential to turn into an Eagle Ford or Bakken-type play for us.” However, the Tuscaloosa also has its challenges. There are mechanical issues, high clay content and high operating costs. When it comes to expenses, though, the industry has been known to bring down costs at the manufacturing stage, said Kelly.
Right now, the Tuscaloosa is home to a handful of rigs. Hypothetically speaking, if the rig count soars into the hundreds, production would explode within a decade, said Kelly.
“Ten years from here, you could have well over a half-a-million bbl. per day of production from the Tuscaloosa,” he said.
Just north of the Tuscaloosa is the Brown Dense play, which sits in northern Louisiana and southern Mississippi. Kelly said it took off from a horizontal perspective two years ago, but flopped due to “very mediocre wells.” But perseverance paid off for the companies that stuck with it.
Southwestern Energy Co. is among those companies. It recently announced results of some of its vertical wells drilled through its Lower Smackover Brown Dense project.
“It’s a very encouraging sign,” said Kelly. “We’re in the early innings right now. A lot of exciting stuff is happening, and I think there is a lot more production that’s going to hit the market.”
Activity is also heating up in the northeast Wattenberg, a Niobrara formation where activity is being led by Noble Energy, Anadarko and smaller independents.
“The Wattenberg has been a prolific gas basin for most of its history, and now we’re seeing this northeast extension, which is more oily,” said Kelly. “We think the economics here might be the best in the U.S.”
In the northeast Wattenberg, shallow wells are being drilled for about $4 million each.
The economics are strong in northeast Ohio’s the Utica too. The economical play is a mix of condensates, natural gas liquids and gas. However, activity in the region has been restricted due to limited infrastructure. Despite this, the Utica made Kelly’s list of hot plays.
Overall, the oil and gas world has become a dynamic place. During the conference’s opening remarks, an Ernst & Young executive said the industry is continuing to work to find solutions to commodity, supply relations and transport challenges.
“The North American market is more vibrant than any other market on the planet,” said James A. Franks, principal of Ernst & Young’s oil and gas leadership team. “We’re being asked to do things that we’ve never [done] before.” “
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