Pearsall Possibilities

It’s hunting season in South Texas, where talk of leases fills café conversations in Atascosa, McMullen, LaSalle and Frio counties. Caffeinated zest this season stems from persistent sightings of an elusive multi-pointed trophy, attracting a coterie of experienced gamesmen to the region.

That trophy is the Pearsall shale. Those who have signed leases for a shot at the quarry include big-game hunters like EOG Resources Inc., Chesapeake Energy Corp., and Cabot Oil & Gas Corp. However, no one should overlook other experienced marksmen like Magnum Hunter Resources Corp., Rosetta Resources Inc. and privately held Cheyenne Oil & Gas, based in Arlington, Texas, Blackbrush Oil & Gas LP of San Antonio, and Houston-based Momentum Oil & Gas LLC.

Like annual rumors about a seasoned prize buck, the Pearsall has been sighted everywhere, from Maverick County on the border with Mexico, to Gonzales, Texas, 60 miles east of San Antonio.

By many accounts, including those around trade industry campfires like Hart’s 3rd Annual DUG Eagle Ford Conference & Exhibition held in October in San Antonio, Pearsall fortunes will change in 2013. Operators are targeting sweet spots near the junction of Atascosa, McMullen, Frio and LaSalle counties.

The hunt for the Pearsall got a boost in June 2012 when Cabot Oil & Gas signed a $250-million joint venture with Osaka Gas Co. Ltd. to begin a two-rig program on 50,000 net acres in Atascosa, Frio, LaSalle and Zavala counties, Texas. That program will expand to three rigs in 2013 and four in 2014, financed by Osaka’s $125-million drilling carry.

Cabot has compiled 147 square miles of 3-D seismic data in the Buckhorn Pearsall, where it projects a potential 300 locations producing up to 40% dry gas and 60% condensate and natural gas liquids at 1,000-foot spacing along the Atascosa/McMullen county line.

Cabot’s first horizontal well, a $10-million Frio County test, produced a 24-hour initial production (IP) rate of 1,400 barrels of oil equivalent per day, roughly 50% oil, out of 11 frac stages in October. At press time, the company was completing a second Pearsall well with three others under way as part of a six-well 2012 program. The company plans 50 Pearsall wells as part of the Osaka JV in 2013.

Cabot’s results compare favorably to those of Cheyenne Oil & Gas, which has completed three Pearsall tests in LaSalle County that generated an average 1,524 barrels of oil equivalent per day, roughly one-third crude oil.

Nearby, Momentum Oil & Gas has acquired 15,000 net acres of its 20,000-acre target since it commenced leasing Pearsall acreage in January 2012. The company will drill its first Pearsall test in 2013. Chief executive officer Rusty Shepherd provided a comprehensive overview of current and historic Pearsall activity at the recent DUG Eagle Ford event.

According to Shepherd, the Pearsall, at 10,000 feet, is the lowest member of several stacked formation targets in a stratigraphic column that tops out in the Austin Chalk. The Pearsall ranges from 300 to 700 feet thick as it arcs from the Maverick Basin on the west to the San Marcos Arch on the east—enough thickness to create a hydrocarbon resource play.

The first Pearsall discovery occurred in the early 1960s, with commercial production in the Maverick Basin flowing from 26 vertical wells over a 45-year period. Outside the Maverick Basin, the Pearsall was known as a heartbreak shale. Industry drilled the first of 15 Maverick Basin horizontal wells in 2008, which have averaged dry-gas production of 2.3 million cubic feet per day with estimated ultimate recoveries of 1 billion cubic feet of gas.

Another 14 Pearsall producers were drilled outside the Maverick Basin in 2012, including 11 horizontal wells. Operators are focusing Pearsall efforts on a narrow liquids-rich band paralleling the Karnes Trough. The Pearsall sweet spot, according to Shepherd, appears to lie near the junction of Atascosa, Frio, McMullen and LaSalle counties—prosaically named Four Corners.

Pearsall production matches the Eagle Ford in nature. Leases in the Eagle Ford gas window also produce dry gas in the deeper Pearsall. But Pearsall prospective acreage in the oil window of the Eagle Ford yields condensate or liquids, the focus of current Pearsall efforts. Of the 11 non-Maverick Basin tests in 2012, nine generated condensate and two were oil producers.

Several marksmen anticipate a 2013 trip to the Wall Street taxidermist if the Pearsall trophy hunt plays out.