The Anadarko Basin Panhandle Granite Wash’s geology is highly variable and complex versus other resource plays, and it presents a challenge for players looking to replicate recent high initial production rate wells announced by Newfield Exploration, Chesapeake Energy, Penn Virginia, and Forest Oil using horizontal drilling. These 20 MMcfe/d plus wells, which have caught the industry’s attention, are being drilled, in general, for costs of less than US $7 million per well with high liquids contents. They provide the latest example of the dramatic impact that horizontal drilling can have on a play with challenged vertical economics.

The geology of the play is variable since the Granite Wash, like the other wash plays, was formed as the mountain range shed 50 to 70 sections of high-porosity sands in fingerlike patterns when the mountains were formed. The most consistently successful member of the formation is called the “B” sand. Some players plan to test the “C” section in 2010 based on a pattern showing it may contain more liquids. High permeability means companies expect to be able to drain gas in place with 160-acre spacing.

Chesapeake Energy, the “800-lb gorilla” in the play, with 290 MMcf/d of production from the various wash plays from both horizontal and vertical wells, has shot 3-D across several areas of the play and is running at least eight rigs across several of its wash plays with its Colony Wash play in Washita County seen as holding the best returns in its company. Chesapeake holds 60,000 net acres in Custer and Washita counties with 110 net MMcfe/d in the third quarter from the Colony Wash. Apache Corp., with its large holdings, will likely soon have results of its second horizontal well nearby. In Washita County, Okla., Penn Virginia believes drilling costs are in the $5 mm range (down from $6.3 mm three months ago). The company holds approximately one third the acreage position that Chesapeake has in Washita County but is actively acquiring to the west of its high rate wells with Comstock Resources.

Given the complexity and variability of results, several industry members with acreage prospective for the Granite Wash have stood on the sidelines, including Unit Corp., Saint Mary’s Exploration, Noble Exploration, and Cimarex Energy. Each of these companies is waiting to let industry prove up the right recipe for successful development before committing dollars in an environment where the future of gas prices remains uncertain. As in the Haynesville Shale, horizontal drilling allows low permeability sands (less than 0.1 millidarcies) to yield economically viable drilling. Further delineation of aerial extent of quality sands.

The play’s key characteristic is that it consists of numerous stacked intervals (anywhere from three to more than 20 intervals) from 8,800 to 13,700 depths in the Panhandle of Oklahoma and Texas. The formation tends to be liquids rich, providing leverage to better economics associated with oil. Nearly 60% of the economics of the wells derives from the liquids content in the wells. Two Counties (Washida in Oklahoma and Wheeler County in Texas).

The Stiles Ranch Field in Texas is where most of the significant Texas wells have been drilled to date. Newfield has 10,000 net acres in the play and is working on expanding takeaway capacity given strong results to date. Forest Oil plans to run three to four rigs in the area in 2010 versus just one for the majority of 2009 based on assumed 5.5 to 6.0 bcfe wells at a cost of $5.5 million. Newfield has said its plans are to test new longer laterals (4,000 feet versus 3,500 ft previously). Apache Corp., with its large holdings in the area, will likely soon have results of its second horizontal well nearby. Plains Exploration has acreage in the vicinity of Stiles Ranch. We expect further results from Hemphill County and at Buffalo Wallow to test the productive fairway to the West of Stiles Ranch where compelling economics have yet to be demonstrated. Devon’s results showed over 5 MMcf/d from its four wells but does not believe its results stack up to its Cana Woodford Shale play in Canadian County. Questar, with its 22,000 net acres in the Stiles Ranch area could become a material player in 2010.

Results from the Mendota Field, to the west of Stiles Ranch, further west of Buffalo Wallow South and North, look most encouraging with rates of 3.9 to 6.1 MMcf/d, still below those of Stiles Ranch and Washita County but potentially robust if results improve. Apache, Plains, Cimarex, and Range Resources could become more active in the area if results show more uniformity.

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