2012 may reveal future for oil in Kansas

02/24/2012 12:00 AM

08/05/2014 6:17 PM

There’s a place in southern Harper County, close to the Oklahoma border, where you might be able to see the future.

The cluster of horizontal drilling and multistage hydrofracking rigs now operating in southern Kansas holds a promise to change the game in the aging Kansas oil fields by ramping up production and employment.

This is the year that companies such as Shell Oil, Chesapeake Energy, SandRidge Energy and others really get a good feel for whether the big money they laid out is worth it.

The big companies publically play up the potential, much to the excitement of residents in Sumner, Harper, Barber, Comanche and other counties.

SandRidge CEO Tom Ward said the company has raised its estimates of its wells in the area – most of which are in Oklahoma – to 450,000 barrels over the life of the well. Its first few Kansas wells near the Oklahoma border seem as productive as its Oklahoma wells, he said.

But many Kansas producers privately remain skeptical that the state’s elderly oil fields will turn back the clock to their wild youth. They also grumble that they can no longer afford the high prices for mineral rights in the region – driven up by the big national firms – and will be forced to limit their drilling or search elsewhere.

Everyone agrees, however, that it is still too early to make a call. This year will tell a lot as the number of horizontal multistage hydrofracked wells jumps from about 10 to more than 100. Success means faster expansion; disappointment means slower expansion.

“They are trying to figure out the extent of it,” said Ed Cross, president of the Kansas Independent Oil and Gas Association. “Every time they drill a well, they have more ability to judge.

“For right now, it’s still an emerging play.”

Conventional surge

Technology is only one reason for a continued revival in oil production in Kansas.

High oil prices have encouraged more exploration and more investment in drilling. Virtually all of the 5,400 wells drilled in Kansas in 2011 were conventional.

This continues a six-year turnaround from a 60-year decline in oil production. The state hit peak production of 122 million barrels a year in the late 1950s. By 2005, that had fallen to 33.6 million barrels, a level not seen since the 1920s.

But as prices rose, drillers got busy. Annual production has climbed 22 percent since then. In 2011, Kansas produced 41.2 million barrels of oil. Overall, the state has about 45,000 producing wells.

Horizontal drilling

But the upside of the Kansas oil patch is limited for conventional drilling, experts say. It will take the new technology to really change the calculus, provided the oil-bearing formation will support the expense of horizontal multistage hydrofracking.

So far, though, the promise of strong oil production has been enough to lure back to Kansas one of the major oil companies, Shell Oil, which left in the early 1990s in search of fields with higher potential.

Fracking and horizontal drilling are decades-old technologies. Conventional vertical wells are typically fracked.

What has changed in the last decade is a combination of hydrocarbon economics and technology. Much of the state and nation’s cheap-to-produce oil is gone. Partly in consequence, world oil prices are high, rewarding those who can find it.

And that has driven the industry to perfect sophisticated and expensive horizontal drilling rigs and the capability to frack a 4,000-foot-long horizontal well bore 12 to 15 times. A finished horizontal hydrofracked well costs five or six times as much as a conventional well.

Shale revolution

The industry has long known that oceans of oil and gas were caught in difficult rock formations, but it didn’t go after them because cheaper oil was available to conventional drilling technologies.

Starting a decade ago, high gas prices convinced natural gas companies to drill into shale formations such as the Barnett Shale under central Texas and the Marcellus Shale in Pennsylvania, West Virginia, Ohio and New York. Production from these formations has been so striking that gas prices have tumbled and some companies are rushing to switch to oil. They’ve also uncorked an environmental backlash and calls for more regulation.

The drop in prices has also punished Kansas gas drillers. The state has one of the world’s largest gas fields, the Hugoton field in southwest Kansas.

But shale gas plays have been a boon to homeowners and industry, providing an important economic stimulus in difficult times.

The potential of these shale oil fields is so great that some experts say the U.S. could wean itself off foreign oil.

Mississippian Limestone

But that’s not what Kansas has.

Kansas and northern Oklahoma have, among several layers of oil-bearing rock, a difficult play called the Mississippian Limestone.

The Mississippian formation is a layer of limestone formed more than 300 million years ago when what is now central North America was covered by a shallow sea. Over the course of 30 million years, uncounted microscopic plants and animals died and their bodies drifted to the seabed to eventually become a layer of rock containing salt water and hydrocarbons.

The Mississippian Limestone sits about 4,500 to 5,000 feet below the prairie and in Kansas generally runs 300 to 500 feet thick, though in Clark County it runs more than 1,000 feet thick in some places and in other places it disappears altogether.

The challenge with drilling in the Mississippian is that all of that ancient seawater is still down there. Ward, the SandRidge CEO, said conventional oil drillers seek out bulges in the rock layer that allow the oil to migrate into pools above the water. Hitting such a pool reduces the amount of water disposal and improves the economics of the drilling operation.

Horizontal multistage fracked wells in the Mississippian rely less on precision and more on volume. Horizontal wells cut 4,000 feet through the layer, draining vast amounts of salty water. Drilling and finishing a horizontal multistage fracked well here costs in the neighborhood of $2 million to $3 million, compared with perhaps $500,000 for a conventional well in Kansas.

The key to making the economics work, executives say, is the ability to process large amounts of water efficiently.

“The mystery of the play that was unlocked,” Ward said, “is that high enough oil prices and drilling a horizontal well that can get enough volume can make money, can have a rate of return. If you have the belief that you can move 3,000 barrels of water a day and get 200 or 300 barrels of oil with it, and do that over a large area, you’d be inclined to go ahead and spend the tens of millions of dollars up front for a water disposal system.”

The water is pumped down to the Arbuckle formation, which, oil executives say, is essentially a 1,000-foot-thick sponge below the Mississippian that can take more water than the Mississippian can produce.

Impact

Cross said that rising production is great economic development. Drilling leases have already put tens of millions of dollars in the pockets of farmers. If the production works out as hoped, it will mean thousands of jobs and tens of millions of economic impact.

KIOGA is setting up a website for companies to post jobs. The big companies bring many of their workers with them, but will still need oil service workers. The biggest demand right now is for commercial truck drivers, Cross said.

With so much at stake, everyone is watching closely.

“Everyone is excited and wants this to work out,” he said. “But there’s just not enough data, at this point.”

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