Enthusiasm for the Tuscaloosa Marine Shale (TMS) has been tempered as prices dropped below $50/bbl for WTI crude oil. Wells can cost $11 million to $13 million, according to a February 2015 presentation by Encana. Although the crude oil from the TMS is high-quality (38˚API to 45˚API) and brings a premium, the true vertical depth for the formation is 3,201 m to 4,308 m (10,500 ft to 14,000 ft), which makes it less attractive than other shale plays.

Exploration of the TMS is just beginning, with very few horizontal wells drilled. That is another reason that so many companies are focusing their capital in plays where there are better returns. About 80% of Encana’s capital budget for 2015 will be focused on its highest margin production—the Permian, Eagle Ford, Montney and Duvernay. That leaves less than 20% of its budget for the Denver-Julesberg Basin, San Juan Basin and TMS.

These three assets underline the flexibility of Encana's portfolio and represent further high-quality investment opportunities. Collectively, the company plans to invest about $350 million to $450 million in these assets in 2015, with combined total liquids production expected to be between 25,000 bbl/d and 28,000 bbl/d, the company said in a Dec. 16, 2014, press release.

For 2015 the most active company in the TMS could be Goodrich Petroleum Corp. The company has more than 325,000 net acres in the TMS, with 150,000 net acres in the delineated core. The 3P resource potential in the TMS is about 710 MMboe. Goodrich expects to spend $73 million to $93 million in the TMS in 2015.

At the other end of the scale, company after company has put operations in the TMS on hold. Comstock Resources said its “oil program is on hold in a low oil-price environment. We increased our position in the emerging Tuscaloosa Marine Shale play to 82,000 net acres, but we have delayed development until oil prices improve.”

On its 2014 earnings call Feb. 26, 2015, Halcon Resources emphasized its focus on its El Halcon and Bakken plays. “We have no plans this year for the northern Utica or the TMS. We have some good land there. There is a lot of gas in the Utica and lots of oil in the TMS. But the prices and our concentration on the better targets we have at El Halcon and North Dakota just demand that we don’t do anything with [the others] at this time,” said Floyd Wilson, Halcon chairman and CEO.

Although current oil prices aren’t high enough to push exploration and development in the TMS, the oil potential makes the play a highly attractive addition to the assets of companies with acreage.

TMS booster

The TMS straddles the border between southern Mississippi and Louisiana, covering about 7.4 million prospective acres. The thickness of the TMS ranges from 30 m to 137 m (100 ft to 250 ft), and the core of the trend is estimated at about 2.5 million acres.

Goodrich Petroleum is the cheerleader for the TMS play. On Jan. 30, 2015, the company presented its revised preliminary 2015 capex budget and 2014 year-end reserves.

Proved reserves from the TMS as of Dec. 31, 2014, grew by 14.9 MMboe and $311 million of PV-10 compared to Dec. 31, 2013, and now comprise 42.1% of the company's reserves and 60.4% of its PV-10.

“As we entered 2014 one of our primary objectives for the year was to transition the TMS play from delineation to development mode. We have done so by shaving days off drilling times, continuing to refine completion designs to deliver maximum production performance at the lowest completion costs and broadening the geographic area of consistent and repeatable well results,” said Gil Goodrich, vice chairman and CEO for Goodrich, on the company’s 2014 earnings call Feb. 26, 2015.

The efforts of the geological and technical team led to a well-defined emerging Tier 1 core of the play in which Goodrich has about 150,000 net acres. “Our land team has done a terrific job expanding our footprint during 2014 and having a well-defined plan to insure the preservation of the majority of our overall position in the Tier 1 core.

“By continuous experimentation with new bits, mud systems and rheology; tweaks of numerous drilling procedures; and rigorous analysis; our drilling team has made tremendous progress through 2014 and into 2015 to steadily reduce average drilling days per well,” he emphasized.

“Our completion team worked diligently in conjunction with our industry partners to tweak our frack interval spacing, cluster design, fluid and proppant mix to deliver best-in-class results at the lowest possible cost with greater success,” he continued.

The company is heavily focused on the TMS in 2015. It plans to drill 11 gross and eight net wells during the year. “By design we have currently seven wells drilled, cased and waiting on completion to achieve even greater pricing on our completions to preserve near-term capital,” explained Jan Schott, senior vice president and CFO.

Rob Turnham Jr., president and COO for Goodrich, said costs have been trending down by roughly 23%. “We have [authority for expenditures] of $10 million for a single-well pad and about $9.4 million for a two-well pad. We sell the crude at the wellhead at Light Louisiana Sweet 2 [LLS-2] grade, which trades to a $5 premium to WTI.

“Our optimized criteria for our wells are that we land in the lower portion of the TMS drilled with a minimum of 5,000-ft [1,524-m] laterals. Fracks are at least 1,500 lb/ft to 1,600 lb/ft [4,900 lb/m to 5,200 lb/m] of sand. We pop hybrid frack jobs, which are a combination of slick water that creates complexity followed by gel that transports the sand into the complex fracture network,” he continued.

“There are some silver linings in the current market, which includes the real cost improvements that we are seeing not only across the industry but in particular in our experience in the TMS. We look forward to demonstrating the enhanced economic returns in the play in 2015 as we expand development of the TMS,” he added.

“We believe the TMS is developing into a premier U.S. shale oil play with prolific flow rates and excellent EURs,” Turnham emphasized.

Other companies

In an October 2014 presentation Amelia Resources illustrated where the TMS was in its development compared to other plays. The company listed the number of horizontal permits in the Eagle Ford (16,134), Utica (1,532) and TMS (131), noting “the TMS is in its infancy.”

Encana has about 200,000 net acres in the TMS and has a gross well inventory of about 1,000 locations. The company expects to spend $30 million to $60 million in the TMS in 2015 and drill two to five net wells.

A favorable regulatory environment and access to LLS pricing advantage further enhances the economics of this play. Supply cost, which is the flat NYMEX WTI price that yields an internal rate of return of 9%, not including land or general and administrative expenses, is $45/boe to $55/boe, according to the company.

Comstock Resources has 327 operated future drilling locations in the TMS. One recent well in Wilkinson County, Miss.—Foster Creek 28-40 1-H—had an IP of 874 boe/d. The company has no wells planned for its 2015 drilling program.

Indigo Minerals II LLC has more than 300,000 leased acres located in the TMS. Indigo II Louisiana Operating LLC is a wholly owned subsidiary of Indigo II that operates all Indigo II Louisiana properties.

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