Texas Chalk Talk

Operators are working on a variety of plays throughout the extensive Austin Chalk trend.

A?h, the Austin Chalk: A promoter’s dream and investor’s nightmare. And yet, the old girl is still attracting some serious oil and gas producers. The hard, chalky, fractured limestone is steeped in hydrocarbons, soaked throughout its hundreds of feet of section with crude and natural gas.

The Chalk stretches from South Texas through the Upper Gulf Coast and into the pine woods of North Louisiana. Its fields—Pearsall, Giddings, Brookeland, Masters Creek, Bayou Jack—have a long and sometimes tattered history in the oil patch.

Booms have regularly visited the Chalk, and just as regularly left it bereft. A quick look at a graph of oil prices pinpoints the highs and lows of this teasing, truculent reservoir: Oil prices and activity have been in lockstep for decades.

Today, the Chalk is enjoying some sunshine once again. Excellent oil prices make it once again worthwhile to work this enigmatic reservoir. These days, tremendous wells are being made in Tyler and Polk counties, Texas, as Brookeland Field swells southwestward. Another exciting, deep area is popping up in South Texas’ Lavaca, De Witt, Karnes and Live Oak counties. New holes are probing the shelf area updip of Giddings, and reentries, recompletions and refracs of existing wells within the traditional producing areas are yielding fresh quantities of crude oil.

This time, the Chalk is delivering some steady, reliable results. It might be going too far to say that the old girl has settled down completely, but she seems to have forsaken her wild ways.

High pressures, high temperatures
The Chalk is sizzling hot again in Tyler County, in a burgeoning fairway off the front of the shelf edge. It’s an incredible high-pressure play—monster wells have come on at rates well above 20 million cubic feet equivalent per day, and ultimate reserves range from 5- to 15 billion cubic feet equivalent (Bcfe). Anadarko Petroleum, Houston, and Ergon Exploration Inc., a subsidiary of Ergon Inc., Jackson, Mississippi, are the two main operators. More than 20 new deep Austin Chalk wells were drilled in Tyler County in 2007.

Houston-based operator The Meridian Resource Corp. holds some 120,000 prospective acres in the high-pressure, high-temperature chalk. It has two main plays: one centered in Polk County; the other, Lavaca and Karnes counties.

Its most recent well, A-507 #1 Black Stone Minerals, tested over a several-day period at gross daily flow rates of up to 20 million cubic feet of gas and 6,200 barrels of oil per day. To date, Meridian has drilled or participated in seven Chalk wells in Polk County, all successful. But, the company has dedicated a couple of years of hard effort to bring the play to this point.

“In Polk County, we’re working the southwestward extension of Brookeland Field,” says Joe Reeves, chief executive officer.

Meridian entered the area in 2005, looking for Woodbine production analogous to that in prolific AA Field. It drilled a couple of wells on a 7,000-acre block for the target, which was not developed.

But the holes did encounter Austin Chalk, and seismic signatures tied the reservoir to giant Chalk wells being made to the east in Tyler County. “We completed our first two wells in the Chalk with dual laterals. Then we tested the idea of using single laterals on the next two wells, but found that we got better rate and reserves, relative to the cost, with the dual laterals.”

Because it had initially targeted Woodbine, the company’s wells intersected about 26 net feet of clean, B-zone pay in the lower chalk. It found it difficult to keep the laterals in zone, due to small faults that were below the resolution of the seismic. And, its wells were not as rich in liquids as other trend wells.

Two recent tests were updip, however, in thicker chalk. Meridian switched to dual, opposing laterals on these, the method settled on by most operators in the high-pressure, high-temperature play. “Longer laterals are better; thicker net chalk pay is better; and we try to stay away from faults,” says Reeves.

Gas-to-oil ratios (GOR) are also more favorable in the thicker pays. And, costs are easier to control, as the laterals tend to stay in zone. “Our last two wells, which were dual laterals, were 20% under budgeted costs.” Each lateral is completed with perforated liner.

Operators are accessing new reserves in the Austin Chalk by reentering existing wells and drilling new laterals into different zones. (Source: Anadarko Petroleum Corp.)

Meridian’s upcoming drilling will focus solely on the Chalk, and it has grown its position to 90,000 acres in Polk and Tyler counties. It’s working in areas where it can find 50 to 100 net feet of B chalk, closer to the shelf edge than in its original Woodbine area.

“We moved updip 500 to 1,000 feet in vertical section,” says Bruce Wright, Austin Chalk geologist. “The wellbore temperatures are cooler, so that’s why we expect higher liquid contents, which improves economics.”

Vertical depth to the chalk is 12,500 to 13,500 feet, and each lateral reaches 6,000 feet. Well costs, complete with facilities, are approximately $10 million. “We drill these laterals using managed-pressure drilling, or flow-drilling techniques,” says Dale Breaux, vice president, operations. Mud weights are on the order of 13.3 pounds per gallon, and bottomhole temperatures are 300 degrees.

“The technologies we need to drill these high-pressure, high-temperature holes have greatly improved in the past decade. Directional tools, motors, steering tools and MWDs all perform better and more reliably than in the past.”

Currently, the company runs two “flex-type” rigs in the play, one of which it owns. “These are 1,500-horsepower rigs, and we’ve designed them for flow drilling. They are efficient and quick to move, and they have small footprints,” says Breaux. Meridian likes to operate and holds 37% to 50% interests in each well. During the coming year, it may add two additional rigs; each can drill three to 3.5 wells a year.

In South Texas, the company has acquired 30,000 acres in a similar play off the front of the shelf edge. This activity has been spearheaded by ConocoPhillips. The major has accumulated a significant position in the trend, and has an active drilling program under way.
“When we started leasing in December 2007, this area was already highly competitive,” says Reeves. Here, the Austin Chalk is thicker and more highly pressured than in Polk County.

“This is a downdip extension of Giddings Field,” says Wright. “All this activity is several thousand feet downdip of existing historical Chalk production, in an area that is relatively unexplored.” Just three completions have been announced to date, on single-lateral wells. Reported flow rates are 5- to 13 million cubic feet equivalent per day, at 2,000 to 3,000 GOR.

The Austin Chalk is about 300 feet thick, and is subdivided into upper, middle and lower zones. Announced completions have been in upper and middle zones, versus typical Giddings completions in the lower portion of the reservoir. “This is a whole new play,” says Wright.
Meridian expects to drill its first well in Karnes County around year-end.

“The high-pressure, high-temperature Austin Chalk is repeatable: It’s like a resource play,” says Reeves. “We’ve climbed the learning curve, and we’re now getting great results.”

Giddings proper
The Austin Chalk also offers a quite different set of opportunities.

Privately held EnerVest, Houston, entered the Chalk in a grand fashion last year with its acquisition of considerable production and properties from Anadarko Petroleum. EnerVest manages the Chalk assets as general partner for three institutional partnerships and EV Energy Partners, its master limited partnership.

EnerVest owns 750,000 acres in the Chalk, spread across the trend from Giddings to Deep Giddings and Brookeland fields, says chief executive John Walker. It has interests in more than 1,400 wellbores, and operates nearly 1,000 of those. Its gross operated production is 150 million cubic feet of gas equivalent per day; net is 110 million.

The bulk of its assets are in the Giddings and Deep Giddings areas. “These are mature fields,” says Walker. “Many of the original horizontal wells have declined to quite low rates, and we’re adding value by going into untapped zones.”

Generally, EnerVest reenters horizontal wells and drills new laterals in different zones within the chalk. In Giddings proper, historical production has been pumped mainly from horizontal laterals in the 30-foot-thick B, one of four zones in the chalk. Efforts today center around recompletions in the D, which occurs 20 to 30 feet above the B. Wells with existing B laterals are reentered and new laterals are spun into the D.

“Anadarko started this program, and we have continued it,” says Walker.

The highly compartmentalized nature of the Austin Chalk can be a surprise to some, because the formation is laced with fractures. “The chalk is fractured vertically, but the fractures tend to die out in thin, silty ash beds that occur between the zones,” says David Kyte, manager of Austin Chalk operations.

“We drill in a different zone, and we angle the laterals for infill spacing,” he says. “This greatly increases our probability of hitting some undrained fractures.” EnerVest has found that it is possible to drill fewer than 1,000 feet away from an existing lateral in a different zone, and hit virgin bottomhole pressures.

In Deep Giddings, the approach is similar but targets are different. In this area, EnerVest works the A zone, which lies 20 feet below the B, and the Georgetown, which occurs just below the chalk.

Vertical depths to its chalk are between 7,000 and 12,000 feet, and laterals extend 4,000 to 5,000 feet. EnerVest generally hangs a liner around the curve and completes the openhole laterals naturally. Whenever possible, it drills opposing laterals; where appropriate, it will also drill grassroots wells. A typical reentry costs between $2- and $3 million; a grassroots well runs an additional 25%.

Still, these horizontals are not as prolific as the original horizontal wells. “These are secondary zones,” says Kyte.

Since it purchased its Chalk properties, EnerVest has drilled 14 horizontal reentries or grassroots wells. This year, it plans 22 to 23. Currently, it has three rigs at work, and will soon add a fourth.

It has a half-dozen workover units also. “We are having some good success with refracs and recompletions,” says Kyte. Although EnerVest initially completes its wells naturally, it will stimulate them later in life if necessary. It also cleans out legacy laterals, which generally date from 1991 to 1996, and stimulates these as required.

While most of its work to date has been in Giddings, EnerVest is beginning to drill reentries in Brookeland. It’s already been working over and refracing wells in that field.

“We’re way ahead of our acquisition economics in terms of production,” says Walker. “We have hit some great home runs. It’s a statistical play, so of course not all the wells are good. But the program has been a giant plus.”

EnerVest has been able to replace its production, and even grow it slightly. “That’s a great achievement in the Chalk. We produce more today than when we closed the acquisition in mid-2007,” he says. Certainly, the assets fit its institutional MLP model, delivering great returns. “And, we literally have hundreds of opportunities, both in the A and D zones.”

Additionally, potential exists above and below the chalk. EnerVest has acquired seismic and is working through its extensive acreage position for shallow possibilities. “We’re not explorationists, so we’ll probably do some joint ventures,” says Walker.

It’s already in a deep joint venture with Apache Corp. for bigger targets beneath the Austin Chalk. Apache can drill for the deep rights on some 400,000 acres in the Giddings area; EnerVest is carried on the program.

Surely, the Chalk still contains tremendous volumes of oil and gas. “The way we look at the Chalk now is that it’s nearly a limitless resource,” says Kyte. “As long as we can keep costs down, we can just keep drilling.”

Central trend
Houston-based Lucas Energy makes its living with its own unique approach to the Austin Chalk. The company started in 2004 with a couple of wells in Gonzales County. The following year, Lucas began trading over the counter. This year, thanks to robust growth, it listed on the American Stock Exchange.

Its business strategy varies from the common tactics of acquiring production or generating prospects. “We basically buy old shut-in or abandoned Chalk wells and revitalize them,” says William Sawyer, chief operating officer. “We’re totally debt-free; from our first day, we’ve had cash flow and profits.” Indeed, it has posted 17 straight profitable quarters.

Lucas concentrates in a part of the Chalk that was underexploited. Gonzales County lies in the central portion of the Texas trend, where the total chalk interval thins to about 200 feet as it crosses the San Marcos Arch. Quite a number of Chalk fields lie within the county, such as Pilgrim, First Shot, Mag and Peach Creek, and many people consider these an extension of Giddings. Wells were drilled in the county in the late 1980s and early 1990s, near the tail end of the last Austin Chalk boom, so the reservoir hasn’t been produced as long as in other portions of the trend. Both vertical and horizontal wells dot the countryside.

A type log from Giddings field in Fayette County, Texas, shows productive Austin Chalk, Buda and Georgetown intervals. (Source: WCS Oil and Gas)

“We liked this area because we saw these wells as good workover candidates, and that’s what we do best,” he says. The company has been building a portfolio of legacy wells that can deliver long-term production. Older Chalk producers, well into the exponential portion of their declines, can reliably make oil at steady rates for decades.

The company chooses its candidates carefully. It considers where choices lie in relation to faults, and the levels of water production recorded in the local area. When Lucas identifies likely projects, it takes new leases or farm-outs. It cleans out and treats old wells, then places them back on production.

It prefers wells that have laterals, will reenter plugged and abandoned wells, and will also drill new laterals in wells that are cased. When Lucas drills a new lateral, typically it’s an opposing one to an existing single-lateral completion.

To date, Lucas has accumulated 11,000 net acres of leases and 1.8 million barrels in proved reserves. It has completed 40 workovers at finding costs of less than $6 per barrel. Margins are excellent—lifting costs range from $8 to $11 a barrel. Water handling and fuel costs are the largest expense, although the company is careful not to take on wells that make large volumes of water.

A signature is Lucas’ use of new or good-condition equipment. Per well, it spends about $100,000 in intangible drilling costs, preparation and clean up, and $150,000 on equipment. “Equipment costs are the biggest for us, but if we don’t like a well, we can move the equipment to another one.”

The firm focuses on effective, inexpensive techniques to bring oil from the laterals to the pumps. “Mainly, we treat the wells with soapy water. It lifts the oil up, and the boost in production lasts for a good while. And, we can generally repeat the treatment several times.”

The company doesn’t estimate recoverable reserves for its Chalk wells. “The Austin Chalk doesn’t have matrix porosity, and for years people have tried to figure out recovery per acre, or recovery for a standard well. We think that doesn’t work in our part of the Chalk.”

Its approach is simple and successful. An average well, one that’s been shut in for years, might come on-pump at 50 barrels a day, and make that for a month. Its best workover averaged 65 barrels a day for more than a year, and after three years, it still makes about 30 barrels a day.

“Our biggest challenge is how fast we can grow, and what types of projects we should focus on,” says Sawyer. “There’s no lack of wells to work over, and we have grassroots proved undeveloped locations also. We have looked at other areas, but we’re doing so well with this program in the Chalk that we’re staying here for a while.”

Updip play
Finally, an active play is also in progress on the updip, shallow side of Giddings Field, from Burleson and Robertson counties along trend into Lee and Bastrop counties. In addition to the Austin Chalk, operators target the underlying Buda and Georgetown intervals.

Clayton Williams Energy Inc. is quite active in Burleson and Robertson counties. Most of the wells in this area were drilled as horizontal wells, many with multiple laterals in different producing horizons. The Midland-based company is infill drilling horizontal wells to 40-acre spacing, and currently has two rigs at work.

This area is oil-prone; wells are typically drilled to depths around 7,000 feet and completed at rates up to 300 barrels of oil per day. Occasionally, stars make more than 500 barrels a day. Water refracs on existing wells are also quite effective, and production rates can skyrocket after such stimulations.

Several smaller companies are at work on this side of the play, including South Texas Oil Co., Diversity Petroleum LP and GeoSouthern Energy Corp.

So, whatever a company’s preference—deep, high-rate wells at the edge of technology, infills, workovers, reentries—the Austin Chalk offers it all. This limey charmer has something for just about everyone.