Extending over 1.6 million acres and stretching from Fisher County southwest into Reagan County, the Cline shale is quietly emerging as Texas’ newest horizontal target. Industry estimates of Cline reserves could be as high as 30 billion barrels of recoverable oil.

While much of the prospective Cline acreage has already been leased, the play is still in early stages of development. As a result, there have been few acquisitions and divestitures to provide meaningful acreage metrics, although A&D activity is expected to rise in the near term as the play continues to mature.

Preliminary results have been encouraging, with estimates of per-well recovery as high as 690,000 barrels of oil equivalent (BOE). Early in the play, in 2008, Cline permitting and drilling activity was focused in Glasscock County in the Midland Basin; however, recent permitting activity has increased on the Eastern Shelf. Permits granted in first-half of 2013 are 74% higher than all permits granted in 2012.

Geology

The Cline is predominately an organic-rich shale interbedded with sand and silt. According to Nikki Morris, senior geologist at FireWheel Energy LLC of Midland, deltaic and pelagic marine deposition occurred along a Pennsylvanian shelf located where present-day Nolan and Coke counties are now situated. The Cline becomes more laminated westward, toward Glascock County, where the basin deepens. Depths to the Cline range from 8,500 to 9,500 feet in the Midland Basin and from 6,000 to 8,000 feet on the Eastern Shelf, with thickness varying from 200 to 350 feet.

Petrophysical properties of the Cline, which are somewhat similar to the younger Wolfcamp shale, have been published by Laredo Petroleum of Tulsa, interpreting a total organic content of 2% to 9% and porosity from 3% to 12%. The API gravity of produced Cline oil ranges from 38 degrees to 45 degrees. However, the Cline has two noteworthy properties that set it apart from the Wolf-camp: thermal maturity and pressure gradient. The thermal maturity of the Cline is slightly higher compared to similar shales, with vitrinite reflectance of 0.85 to 1.1. This places the shale in the peak oil generation to early gas generation window. The slightly over-pressured Cline shale has a gradient ranging from 0.55 to 0.65 psi per foot, which helps lift early fluid production.

Operator activity

Many companies are keeping data confidential. The most active operators in the play are Laredo, Apache, Devon, FireWheel, Occidental Petroleum, Range Resources and Energen.

Laredo has been a top operator in the play since 2008, when it drilled its first Cline well in Glasscock County. Its recent core study confirms similar reservoir properties in Glasscock and Mitchell counties. This increases prospectivity of acreage on the Eastern Shelf as the company continues de-risking its remaining positions.

As of first-quarter 2013, Laredo had completed 35 wells in the Cline with an average 30-day initial production (IP) rate of 29 barrels of oil equivalent (BOE) per day per frac stage. Five wells drilled by Laredo have 30-day IPs ranging from 510 to 760 BOE per day (3,800- to 6,800-foot laterals; 12 to 19 frac stages). The average production rate of the Cline is holding closely to the projected decline rate, increasing confidence in the developing trend.

Laredo estimates long-lateral wells (7,500 feet; 26 frac stages) will have estimated ultimate recoveries (EURs) between 550,000 and 690,000 BOE, with drilling and completion costs approximately $9 million per well. Laredo is testing pad layout and evaluating a multi-well, stacked-lateral pilot program for simultaneous development of the Cline and Wolfcamp.

Apache ramped to four rigs in January 2013, focusing on Glasscock County. Initial results have been encouraging, and the company plans to drill more than 20 wells in 2013. A recent well spudded in June 2012 had a peak IP rate of 810 BOE per day, with an EUR of 604,000 BOE (3,780-foot lateral; 11 frac stages). Apache has the largest position in the Cline at 520,000 net acres, which could yield 2,300 drilling locations. The company has significantly reduced its drilling and completion costs by more than $1 million per well by optimizing bit selection, improving mud programs and using pad drilling.

Devon’s $1.4-billion joint venture forged with Sumitomo Corp. in August 2012 will help finance Cline development. Devon is the second-largest acreage holder with 389,000 net acres. It plans to drill more than 30 Cline wells in 2013.

FireWheel’s first Cline well was spudded in Sterling County in June 2012, with a peak liquids production rate of 662 barrels per day. This well had 90-day cumulative oil production of 12,698 barrels. FireWheel drilled three wells in 2012, permitted three wells for 2013, and is currently operating one rig in the Cline.

Occidental Petroleum, the Permian’s largest operator, has just announced plans to go forward with the installation of a major pipeline to move 75,000 barrels of oil per day oil out of the Cline play.

—Cole Reynolds, Scotiabank, cole.reynolds@scotiabank.com ?

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