Lower 48 Exploration: The Far Eastern Chalk

[Editor's note: A version of this story appears in the August 2019 edition of Oil and Gas Investor. Subscribe to the magazine here.]

Western Louisiana’s Austin Chalk has produced some legendary fields, particularly Masters Creek, West Masters Creek and Sugartown. Combined, they’ve made 34 million barrels (MMbbl) of oil and 148 billion cubic feet (Bcf) of gas.

The eastern side of the Louisiana Chalk, though, has received little affection over the decades, particularly as operators sought underlying gas pay from the Tuscaloosa sands and ignored the fickle, fractured Chalk.

Spurring excitement now for the far eastern Chalk fairway that stretches from South Texas to Mississippi is that oil and gas heavyweights EOG Resources Inc. and ConocoPhillips Co. may be writing a new chapter in this Chalk story.

Smaller-budget leaseholders in the eastern Louisiana Chalk have been hoping to go to school on what these bigger-balance-sheet explorers find—and what completion recipe they use in surfacing the bounty.

But it’s been a long two years since news of EOG’s Eagles Ranch 14H well ignited fascination with the eastern potential.

The well—in far southern Avoyelles Parish west of the Mississippi River—has 20,646 feet of total hole and a true vertical depth (TVD) of 16,026 feet. It was drilled in 62 days in North Bayou Jack Field.

Completed in September of 2017, it came on with 1,120 bbl of oil, 1.12 million cubic feet (MMcf) of gas and 2,947 bbl of water per day. The GOR was 1,033; oil gravity, 43. Perforations were made at between 16,000 and 20,550 feet.

March oil production was about 54 bbl/d. Cumulative production was just under 140,000 bbl.

More recently, the state released results of two ConocoPhillips wells—both east of the Mississippi. Hebert #1, with 19,461 feet of total hole and a TVD of 13,778 feet, was drilled in 54 days in eastern West Feliciana Parish in Jackson-Northwest Field.

It was completed in May for 206 bbl of oil, 0.134 MMcf of gas and 4,279 bbl of water per day. The GOR was 650; gravity, 37. Perforations were made at between 14,000 and 19,320 feet.

McKowen #1, with 19,161 feet of total hole and a TVD of 14,986, was drilled in 70 days in western East Feliciana Parish in Freeland Field. It was completed in March with 60 bbl of oil, 0.034 MMcf and 3,498 bbl of water a day. The GOR was 567; oil gravity, 36.4. Perforations were made at between 15,000 and 18,745 feet.

A third ConocoPhillips well, Erwin #1, remained in confidential status as of late June. With 18,865 feet of total hole and a TVD of 15,500, it was drilled in 46 days in West Feliciana Parish in Mount Common Church-Southwest Field. From it, 283 feet of core was taken, covering the entire Chalk section.

Also east of the Mississippi, EOG recently drilled Ironwood 37H-1 in 18 days, with 18,320 feet of total hole in northern East Feliciana. And it has a permit for plans to return to the west side of the Mississippi, this time in central Point Coupee Parish, with Brunswick #1. There, it is expected to drill a pilot first, pulling core of the Chalk.

ConocoPhillips has a fourth well, Soterra #1, that was being drilled at press time far east in St. Helena Parish. And it has a fifth permit, Jones #1, which is planned for southeastern East Feliciana.

That’s it to date east of Masters Creek. Smaller operators remain on the sideline. One that was planning verticals near EOG in North Bayou Jack Field took permits in early 2018; the permits expired earlier this year.

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Plugs and Staging

Among those operators that have been waiting, Lafayette, La.-based PetroQuest Energy Inc. is ready for a go at it. The company had a rig en route to Point Coupee Parish at press time to, initially, drill a vertical test. Plans were to core some 350 feet of Chalk.

Charlie Goodson, president and CEO, saw vertical Chalk work in the 1970s in Texas and the horizontal effort in East Texas and western Louisiana in the late 1990s, predominantly by Chesapeake Energy Corp. and Union Pacific Resources Co.

In Chalk 1.0, the good verticals intersected natural fractures; they weren’t fracture-stimulated. In 2.0, horizontals were deployed, also unstimulated. In 3.0 in South Texas and East Texas, the Chalk horizontals are being fracked to tap matrix porosity—that is, the oil trapped within the rock itself—and with economic success.

The 3.0 job is what PetroQuest plans for its 21,000 net acres that are east of EOG’s Eagles Ranch in Avoyelles and Point Coupee parishes.

“In this area, there were a lot of oil shows in the lower portion of the Chalk as operators drilled through this section on the way to the Lower Tuscaloosa [known as Woodbine in East Texas]. It was always felt there was a lot of oil in place; we just didn’t know how to effectively produce it,” Goodson said.

“There were several dozen vertical wells that were drilled specifically for the Chalk, after they drilled through it for the Tuscaloosa Sand below.”

In eastern St. Landry Parish and in Point Coupee Parish, EURs of wells with the Chalk as the primary objective ranged from less than 100,000 to up to 500,000 bbl of oil. “The upper tier of those more than likely intersected natural fractures and made economic sense,” Goodson said.

In the late 1990s, some of the unstimulated Chalk horizontals in western and central Louisiana produced up to 650,000 bbl of oil, “clearly indicating that, if you had decent matrix porosity and intersected natural fractures, things worked.”

Far east in Livingston Parish, a Chevron Corp. vertical, Crown Zellerbach 7 #1, produced 291,000 bbl of oil and 357 MMcf of gas from the Chalk from 1980 through 1986 at about 16,300 feet, according to the state Department of Natural Resources.

Going fracked horizontal in the Chalk, without modern stage-placement technology, would have been challenging, Goodson said. That’s largely why it’s taken so long for operators to frack the Chalk.

“Without plugs and staging, it’s understandable,” he said. Meanwhile, shales have offered better investment odds, without the hit-or-miss drama. And gas prices began declining in 2012; oil prices, in the second half of 2014.

“That’s how a lot of this stuff happens,” Goodson said. “Right place, right time. And in the past, the Chalk was the wrong place or the wrong time.”

The Chalk is fairly homogenous, with some fluctuations in porosity and content—oil, gas, water. “But a lot of it just boils down to people being focused on things they know they can do.”

Learned from Karnes

In 2010, Anadarko Petroleum Corp. leased 250,000 acres in the Louisiana Chalk and drilled a few wells. It let the leases expire in 2014. Goodson said, “In retrospect, they appear to have been spot on in where they focused their efforts.

“But, unfortunately, they only drilled four modern horizontal tests and did not attempt to frack any of them.”

At around that time, BlackBrush Oil & Gas LP announced a fracked, horizontal Chalk success in Karnes County, Texas, overlying the Eagle Ford.

Goodson said, “EOG in their infinite wisdom stepped in right behind [Anadarko] and picked up the exact same acreage with a plan to go in and frack.”

PetroQuest followed, picking up its acreage for about $15 million in cash plus 2 million shares. Its leasehold is downdip of the Lower Cretaceous Shelf Edge, “which is one of the defining points in this play—not only by us but by many others.”

The updip Chalk fairway was deposited in a shallower environment than the downdip fairway south of the Shelf Edge.

If the core analysis is positive, PetroQuest may return to the location to drill a lateral off the vertical. The earliest start would be in late 2019.

“A lot depends on what we see. If this is a tight sponge full of oil, obviously we will be moving a lot faster. We may want to see what others are doing,” Goodson said.

“There is another well being drilled by EOG 1,500 feet downdip in our immediate area. Theirs seem to be permitted the same as ours—as a vertical to be cored.

“They may plan, with a much bigger pocketbook, to keep the rig on location, do a shorter evaluation on location and go ahead and drill their lateral. I don’t know. They’re the least likely to tell you what they’re going to do.” Editor’s note: EOG was contacted for the article but did not respond.

PetroQuest’s leasehold carries varied expirations. “We feel comfortable we can certainly maintain through the extension periods,” Goodson said. Based in Lafayette since 1985, “we have known many of the landowners we have under lease for generations.”

Other new eastern Louisiana Chalk wells are east of the Mississippi in what are known as the “Florida parishes,” outside of PetroQuest’s leasehold. (The term derives from when this area of the state was part of Spain’s Florida at the time of the Louisiana Purchase from France.)

“For us, the play has not matured as fast as most people thought,” Goodson said. “Right now, the area in the Florida parishes is getting most of the attention.”

Giddings vs. Eastern Chalk

Phil Martin, CEO of New Century Exploration LLC, has worked primarily in the Texas Chalk. The Louisiana Chalk is deeper and has a higher pressure gradient, he said.

“So there are some things there that more match the southern Giddings Field area in Washington County where Chesapeake, GeoSouthern Energy Corp. and others are making some big gas wells in the wet-gas window. That’s a bit more similar to most of what’s going on in Louisiana.”

An advantage in Louisiana is that the leasehold is relatively inexpensive, Martin said. “PetroQuest reportedly got around 25,000 acres for $700 an acre.” ConocoPhillips’ roughly 225,000 net acres were leased at less than $1,000 an acre.

Also, the Louisiana Chalk makes sweet oil, extensive infrastructure is pre-existing “and it’s pretty close to refineries, so you’re getting premium takeaway prices.”

The Louisiana Chalk sits in four fairways—all associated with proximity to the shelf edge. The most updip is the Back Reef Shelf; it’s historically somewhat less productive and doesn’t have as many fractures.

“But it’s a very active target right now because it is what is being extended from East Texas,” Martin said. The popular play in East Texas currently focuses on areas with favorable matrix porosity, “drilling in quieter areas where you don’t have as many natural fractures and going in and making your own fractures.

“That’s what’s been going on in Texas, while the abundant natural-fracture areas have been drilled up over the years. So the Back Reef Shelf trend would probably be more similar to the black oil portions of Giddings.”

Moving south, the fractures increase, primarily due to draping over the Edwards Reef while also simply being deeper. The next fairway is the Near Fore Reef Shelf Slope.

“That’s the trend EOG drilled in [with the Eagles Ranch].” It’s the Gulf-side edge of the Lower Cretaceous Shelf Edge. “You do have faulting there more than you do north of the Shelf Edge, and that’s primarily due to the extension of the deeper Tuscaloosa.”

The fourth—and most downdip—is the Far Reef Lower Shelf Edge. “There’s also some fracturing there, primarily due to subsidence and normal fault movement.”

Water Cut

Martin said, “The notable part of the [Eagles Ranch] IP and the production is it’s about 70% water cut, and that’s not good.”

In Giddings, water cut can be up to 40%; in some places, up to 50%. Sometimes, it can be a result of gel fracks fracking out of the main zones, or out-of-zone placement, “so some of that water isn’t Chalk water saturation; it could be coming in out of other zones. The bottom line is you’re producing wherever that water comes from.

“It may be what happened with the EOG well. But that’s pretty high water cut. I don’t think that will happen across the play.”

The EOG well “also had a very severe decline rate,” producing about 54 bbl/d in March. “That well is almost certainly sub-economic at today’s oil prices,” Martin said.

The frack job used more than 2,500 pounds of proppant and 53 bbl of fluid per lateral foot. “They did give it a nice frack.”

As for rock properties, the Eagles Ranch Chalk and the Texas Chalk both have high resistivity. Total organic content varies but is generally above 2%; matrix porosity, from 3% to almost 10%; permeability, from 0.02 to 1.2 millidarcies.

“Basically, you need to combine matrix porosity and natural fractures and then use a nice, big, almost Eagle Ford-style frack to connect those natural fractures and squeeze more oil out of those rocks,” Martin said.

“I expect we’re going to see some localized success and probably some that don’t work out as well—if low oil prices don’t kill development off first.”

‘Saturated and Thick’

Kirk Barrell has sold some 135,000 acres of leasehold prospective for eastern Louisiana Chalk—one of the buyers was ConocoPhillips, which picked up 85,000 net acres for $87 million—and has about 400,000 remaining.

A New Orleans-based geologist, Barrell is president of Amelia Resources LLC and drilled the Tuscaloosa sands for Amoco Corp. in the early 1990s. In early 2017, he did an extensive regional analysis of the Chalk from Mexico to Mississippi.

The eastern Louisiana Chalk play “is more of a petrophysical approach than a fracture-intersection approach,” Barrell said.

The new Chalk play in southwestern Giddings Field that is having success was a “graveyard of dry holes” in the unfracked, horizontal 1990s. “Chalk 3.0 is trying to find the highest matrix porosity you can find that’s saturated and thick.”

In the eastern Louisiana Chalk, data are available. About 700 wells penetrated it while heading to the Tuscaloosa sands. With all of that log data, “you can do an evaluation and determine where your thickest saturation and highest porosities are.”

The far eastern Chalk is its own source rock, he added, while the oil in the Texas Chalk is mostly sourced from the Eagle Ford. “In the early ’90s, when I was with Amoco, we did a lot of oil-typing and confirmed the Austin Chalk in that core Tuscaloosa Trend area is a source rock.

“So it fits in the unconventional model of finding the best TOCs [total organic content] and best porosity and putting a high-proppant frack on it.”

The eastern Chalk was deposited about 89 million years ago; the Tuscaloosa Marine Shale (TMS), some 700 to 800 feet below, about 93 million. “The same conditions that caused the TMS hydrocarbons to cook to the right level did the same thing for the Chalk. Each was cooked at the right temperature at the right time.”

Water cut varies widely, he said. Barrell finds it changes west of Avoyelles Parish. Masters Creek, for example, made an average of 12 bbl of water per bbl of oil for a total of 311 MMbbl of water.

He has no doubt that smaller operators are waiting for bigger balance-sheet operators to crack the code in the far eastern Chalk. “Now the lease clock is ticking in all of the cases.” Most lease terms are for three years with options for three-year extensions.

Marathon in Masters Creek

As for the western Louisiana Chalk, some operators “were planning on piggybacking on Marathon [Oil Corp.’s] program,” Barrell said.

Marathon leased some 240,000 acres for less than $900 an acre. Registered with the state as Southwind Oil & Gas LLC, it temporarily plugged its Crowell LM 30 #1 at total depth of 15,534 feet and TVD of 15,508 feet in December.

Barrell said, “Marathon experienced significant problems with the high formation pressures and never was able to drill the lateral portion of the well.” The hole is in Masters Creek Field in southeastern Rapides Parish. Marathon has a permit for a second well, Crowell LM 30 #2, on the lease.

Barrell said, “Marathon’s challenges have really cost [these other operators] a year on their lease clocks.”

Also in the western Louisiana Chalk, Lime Rock Partners-backed Prime Rock Resources LLC has signed a joint venture with privately held New Dawn Energy LLC to develop some 120,000 net acres from the Texas border to Rapides and Evangeline parishes. The leasehold is primarily in Masters Creek Field.

They expect to acquire additional leasehold, they reported in June. Prime Rock has more than 100,000 net acres in Central Louisiana; New Dawn owns more than 270,000 net acres of minerals in western Louisiana, including more than 150,000 net over the Chalk.

‘Technically Strong’

Compared with deeper, TMS attempts earlier this decade, Barrell said, “I feel we have much better operators leading the charge this time. They’re operationally strong, technically strong and fiscally strong.

“We’re going to have a much better start. And ConocoPhillips, EOG and Marathon, they’re all very active in these same-age formations in South Texas. They have a lot of experience with these same-age rock and same type of rock. That’s a major plus.”

Barrell would like to see the new far eastern Chalk play become a stacked play for Chalk and Tuscaloosa, as they’re only about 750 feet apart. Australis Oil & Gas Ltd. continues to attempt the TMS in southern Mississippi, having picked up leasehold from Encana Corp., which discontinued its effort.

“While [Australis] struggled operationally, they did have success with two wells—both full-length laterals,” Barrell said.

J.P. Morgan large-cap E&P analyst Arun Jayaram reported in May that, after three months of production, one of the Tuscaloosa wells had made some 86,000 bbl; the other, after 19 days online, had averaged about 1,100 bbl/d. Lateral lengths are about 6,800 feet.

Two other wells didn’t work out, Jayaram wrote, “supporting how the current perception of the [TMS] play continues to be hit or miss.”

Barrell said, “They’re still using Encana’s 2014 frack design just to prove they can replicate that, but we’re getting 1,450 barrels of oil equivalent per day out of these recent TMS wells.”

Stacking wells could be “intriguing for the economics, and EOG has leased all the way into Mississippi,” Barrell added. “It’s obvious they have some TMS interest.”

Based on the fact that EOG drilled Ironwood in 18 days for Chalk above Tuscaloosa, averaging more than 1,000 feet a day, “EOG has proven that a TMS well could be drilled in 19 days,” since the TMS is just another 700 feet below the Chalk, he said.

‘Pulling the Trigger’

Bryan Hanks’ Lafayette-based Beta Land Services LLC has led land acquisition for clients across several shale plays, including the Haynesville. While there has been considerable leasing in the far eastern Chalk, he has inquired as to the dearth of drilling activity among smaller operators.

“Everybody has a twist or a story,” Hanks, Beta’s president, said. “They are reconfiguring the rig or going with a different [internal] team. There are a lot of plans, but nobody’s pulling the trigger.”

Devon Energy Corp., which has leasehold east of the Mississippi River, replied to Investor that it is too early to comment. In the western Louisiana Chalk, Marathon said it’s still in early stages.

Marathon chairman, president and CEO Lee Tillman said at IHS Markit’s CERAWeek earlier this year, according to Bloomberg, “If [the Louisiana Chalk] works—and that’s still a question—that kind of investment gives you the opportunity to create outsized, full-cycle returns because your entry cost is so low.

“If we’re successful, that’s a basin-opening opportunity.”

Also having leasehold for Louisiana Chalk is Cimarex Energy Co. According to J.P. Morgan’s Jayaram, Cimarex has some 130,000 net acres in the Louisiana Chalk with all but about 9,200 picked up in 2018.

“We note the company is currently in a watch-and-see mode, likely observing the results of ConocoPhillips and EOG first before deploying incremental capital dollars to the play,” Jayaram wrote. “We also note a very similar phenomenon for Devon.”

John Lambuth, Cimarex senior vice president, exploration, said in an earnings call in February that “we have been able to accumulate a very nice acreage position in Louisiana, and we are actively pursuing an exploration idea there.”

He added that, if there are good results, “at some point, then we'll speak more to it.”

Jayaram reported earlier that month that another leaseholder’s presentation showed Cimarex’s position to be east of the Mississippi River in Livingston Parish.

This spring, Hanks said, some plans on private land underlying the Morganza Spillway path in central Point Coupee Parish may have been postponed while leaseholders expected the Mississippi River control structure to be opened to relieve flooding. At press time, the opening was postponed indefinitely.

At Red River Landing on June 25, the river was at 59.8 feet; flood stage is 48 feet.

Election Year

Some potential drillers are awaiting results from the Louisiana gubernatorial race, which will be decided this fall. The incumbent, John Bel Edwards, has supported “legacy lawsuits.”

“It’s just such an obstacle to get over,” said Hanks, who is a past chairman of the Louisiana Oil & Gas Association and continues to serve on its executive committee. “He truly believes in these legacy lawsuits: When you buy a property, you inherit everything that ever happened on that property.”

Other than this, Edwards has been engaged in supporting oil and gas industry growth, Hanks said.

Amelia’s Barrell said that, with the Haynesville play in northwestern Louisiana reemerging, a new Louisiana Chalk play presents an opportunity to further generate some positive economic results for the state, particularly as the Gulf of Mexico industry remains depressed.

“So let’s hope that [whoever wins] is industry-friendly and wise enough to understand the potential impact of the upside [of oil and gas development].”

Beta’s Hanks said that, meanwhile, operators with undeveloped leaseholds “have to develop those investments. They’re going to have to deal with it one way or another, especially if [Edwards] gets reelected.”

‘Chess moves’

ConocoPhillips responded that it couldn’t provide an interview at this time. Chairman and CEO Ryan Lance said in a press conference after the company’s annual meeting in May that it wanted to finish the initial four-well program before discussing it further, according to an S&P Global report.

“We probably won’t have results until later in the year,” he told S&P Global, adding that the company is “still optimistic.”

The operator’s May investor presentation cites the Louisiana Chalk play as “leveraging learnings from Lower 48 unconventional plays, including updated completion designs.”

J.P. Morgan’s Jayaram reported that EOG has created 33 2,000-acre drilling units in West Feliciana Parish east of ConocoPhillips and in the updip window. (EOG’s Eagles Ranch well is downdip, south of the Shelf Edge. Brunswick is as well. Ironwood is updip.)

He added that ConocoPhillips and EOG have applied for about 18 permits each in the two Feliciana parishes, “with a majority directly offsetting one another.”

Also, “in addition to EOG bulking up its permit backlog, ConocoPhillips appears to have made a similar pivot and—although the first well test that we came across from ConocoPhillips was negative—the company’s permitting chess moves as of late certainly make us believe that incremental technical data and learnings from that first well have influenced them on future permitting actions.

“And we do not expect EOG to be left out.”

Geaux Louisiana Chalk

PetroQuest’s Goodson said, “Regardless of whether or not we have leasehold in all segments of the play, we are hoping for success across the trend. This may be ‘South Louisiana’s Haynesville.’”

In all of South Louisiana in June, there were only four active rigs, he said. Since the Jennings Field discovery in 1901, “it has never been this inactive” in South Louisiana. The revival of the Haynesville rig count in North Louisiana is very encouraging for the state, and Louisiana oil and gas production’s access to markets is a distinct advantage.

“Chalk 3.0 is trying to find the highest matrix porosity you can find that’s saturated and thick.”
—Kirk Barrell, Amelia Resources LLC

“The Haynesville is, by pipeline, less than one day from the largest hydrocarbon-processing center in the world, stretching from Corpus Christi, Texas, to Mobile, Ala., with the bull’s eye for LNG 100 miles due south around Lake Charles.

“If the Louisiana Austin Chalk works, our acreage begins 5 miles from the Mississippi River ‘as the alligator swims,’ as we say. Just downstream another 10 miles begins refinery row, all the way to the Gulf of Mexico and the benefits of LLS [Louisiana Light Sweet] pricing.

“We have access by truck and pipeline and have heard about thoughts for a barge terminal on the river, which could also be a receiving point for barge loads of frack sand, which will be needed in massive quantities.

“Bottom line, everyone in Louisiana is rooting for Austin Chalk 3.0 to be an economic success.”

Nissa Darbonne can be reached at ndarbonne@hartenergy.com.