The hills are alive
|… with the sounds of oil companies and Feliciana landowners hoping to strike it rich in the Tuscaloosa Marine Shale.|
For years, LSU Mineral Law Institute Director Patrick Martin has immersed himself in the oil and gas industry, mostly on paper.
He harbors an almost romantic appreciation for the image of a working oilrig, much as an art patron admires a sculpture.
He rarely travels without a camera in order to capture images of oil wells. He's gone scuba diving to photograph an underwater rig.
He's particularly fond of the opening scene of the 1970 movie Five Easy Pieces, starring Jack Nicholson, which pans a California oilfield that's filled with pumping rigs Martin likens to “fabulous prehistoric creatures.”
These days, he doesn't have to go far for the snapshots or scenery. Martin now finds himself living in the middle of one of the hottest oilfield plays in the country.
Almost one year ago, he leased all 130 acres of his land in East Feliciana Parish to companies drilling in the Tuscaloosa Marine Shale. His property is particularly marketable; two pipelines practically converge on the adjacent right of way.
“I love it,” says Martin, known most days to take a walk or a drive to check on the activity around him. “I've been in the oil industry since 1974, and it's fitting that I've settled on top of billions of barrels of oil.”
The sweet spot
The Tuscaloosa Marine Shale is a 2.7 million-acre swath across southeast and central Louisiana and southwestern Mississippi that's believed to hold at least seven billion barrels of oil.
The sweet spot is believed to lie within the Capital Region in East and West Feliciana parishes, as well as parts of St. Helena, Livingston and Tangipahoa. Some industry experts are calling the play Louisiana Eagle Ford because of its geological similarity to the highly productive shale of that same name in Texas.
Prospectors from across the country and 18-wheelers loaded with giant drilling equipment have descended upon such small communities in the rolling hills as Clinton, Ethel, Jackson and St. Francisville. Landowners are being paid between $150 and $300 per acre—plus the typical 3/16 royalties—for three-year leases, often with a three-year extension.
For now, the prospectors come as detectives trying to solve a mystery that is part-geology, part-economics: Can the oil buried in the Tuscaloosa Marine Shale be freed and turn a profit? If the answer is yes, life could change drastically for those communities, the Capital Region and Louisiana, bringing jobs, businesses, a housing boom and severance taxes.
Much of the work is shrouded from public view in this race to see who first hits the black gold mother lode. Residents report being within several hundred yards of a rig and not even being aware of its presence until they see it spike above the trees.
Others involved in the play say it could take from three to six months or a year or more before it becomes clear whether drilling the shale will be economically viable.
It is currently considered a high-risk prospect, given the clay content in some parts of the shale, which can collapse into fractures and prevent oil flow. Well operation in the Tuscaloosa Marine Shale currently runs between $9 million and $15 million.
“Most of shale plays didn't really know what they had until 30 to 50 wells, but the industry has come a long way,” says Kirk Barrell, the president and managing partner of Amelia Resources, a company based in The Woodlands, Texas, that has assembled 105,000 acres in the Tuscaloosa play and partnered with two other firms to drill the wells.
“It's going to take probably a year's worth of production from 10 to 20 wells to really understand the true economic viability of the project. It's either going to be huge or it's going to be a failure. If the engineers figure out the fracturing and the reservoirs respond, it's going to be significant. You have a perfect case study at the Haynesville in north Louisiana. The income to the landowners, the income to the state and all the different jobs created would be extremely significant.”
A dozen wells currently are operating along the Tuscaloosa Marine Shale from Vernon to Tangipahoa parishes, with the largest cluster in the Felicianas. As many as eight more are said to be in the planning stages.
Five companies lead the race: ?Goodrich Petroleum and Indigo Minerals, both of Houston; Devon Energy of Oklahoma; and Encana Oil & Gas of Canada, which is partnering with Denbury Resources of Texas. Also involved are EOG Resources Inc. and Newfield Exploration Company, both of Houston.
Another 11 wells have been drilled in the adjacent Austin Chalk, which runs further south, dipping into Pointe Coupee, East Baton Rouge and Livingston parishes. Companies involved there are Anadarko Petroleum, Atinum Operation and Swift Energy, all of Texas; and Nelson Energy of Shreveport.
There are wells on the Beech Grove Plantation site (the home was destroyed by fire in 2007) near St. Francisville, Avondale Scout Reservation east of Clinton and timber giant Weyerhaeuser Co.'s forest land. So far, a well on school board property in Amite County, Miss., has been producing 300 barrels per day—encouraging, to be sure, but not quite what one might call a gusher.
“Everybody is out there, everybody is mildly enthusiastic and encouraged, but everything is still preliminary,” says David Dismukes, assistant director of the LSU Center for Energy Studies. “There's been no bad news, so no bad news is good news. But the conventional wisdom is we won't be hearing or seeing serious information about this until after the first of the year.”
This isn't the first time companies have sought to drain oil from this shale.
The late wildcatter and geophysical engineer Alfred C. Moore pioneered and led the first effort to produce the formation in 1970, when he sold a proposal to Sun Oil to target the play. During the 1950s and 1960s, he and others documented oil shows on the pits whenever the Tuscaloosa Marine Shale was drilled through, just above the Lower Tuscaloosa sands that he and fellow operators were targeting.
Moore sold his South Slope Project three times to successive operators to test the shale's potential from 1970-78. The four vertical wells drilled failed commercially because of low production rates, though operators produced two of the wells for many years. Then, in a 1998 report, the LSU's Basin Research Institute estimated that the Tuscaloosa Marine Shale play holds seven billion barrels of oil, revitalizing interest.
But it really wasn't until developments in horizontal drilling and hydraulic fracturing made tapping unconventional oil and gas resources commercially feasible in other oil shale plays that the Tuscaloosa really took off about a year ago. That oil prices have rebounded and natural gas prices have tanked hasn't hurt.
“The companies are still leasing more acreage, and they're not doing it to put up hot dog stands on every corner,” Louisiana Oil & Gas Association President Don Briggs says. “Obviously, some of their testing is proving out interesting enough for them to continue to lease.”
Productive oil and gas plays can create a gold-rush mentality, with landowners and business owners energized by the prospect of making a whole lot of money in a short period of time.
Briggs notes that people with a few hundred acres in the Haynesville Shale play became overnight millionaires, and a few living in rundown trailers on 100 acres of family land were handed more money than they had ever had in their lives.
“There was a fever,” he says.
That's not the case along the Tuscaloosa, where prospectors have already snapped up an estimated 1.2 million acres of land in the so-called sweet spot. The per-acre price tag of $150 to $300, along with the 3/16 royalties, remains much more affordable than the Haynesville Shale, where land was leasing for as much as $30,000 per acre, with 25% royalties.
Clinton attorney Leslie Ligon Jr. and his son have handled more than 500 lease contracts during the past 15 months. He's had to bring in part-time help to keep up with the workload.
“We don't have very many places for rent anymore,” he says. “Office space, houses are being rented. When they came in here with all that oil lease activity, you couldn't find a place to stand in the Clerk of Court's Office. There are not very many properties left in the area of interest.”
One of the biggest landowners in the Tuscaloosa Marine Shale is forest products giant Weyerhaeuser, which owns more than 100,000 acres in what is currently defined as the trend, with about half under some type of lease or agreement. The company owns additional acreage that could fall within an expanded drilling area if the play proves successful.
Spokesman Mike Wolff says this isn't the company's first go-round in shale play; it has an entire staff assigned to manage its mineral assets, employees who actively market leasing opportunities to oil companies.
Throughout the country, Weyerhaeuser has revenue interest in nearly 1,000 oil and gas wells, manages nearly 600 active oil and gas leases covering more than 500,000 acres and owns more than 7 million acres of mineral rights—a little over half of it in the South. It currently receives royalty payments from 100 wells in the Haynesville play in north Louisiana.
Wolff says it's not yet clear how much of Weyerhaeuser's mineral ownership will fall within the Tuscaloosa Marine Shale if it is ultimately successful.
“It's clear that there is oil in the TMS,” he says. “At this time, the key question is, can it be produced economically? It is too early to speculate on the economic outcome of this play as considerable additional drilling and testing is still needed.”
An independent land man contacted the family of John Barton Sr. about leasing several thousand acres of their land to Devon Energy. They negotiated the terms for about a month.
Barton's son, John Barton Jr., agrees the Tuscaloosa Trend hasn't quite yet emerged as the gold rush that Haynesville proved to be.
“Not nearly the impact yet, but we hope it will at some point,” says Barton Jr., a partner in the Baton Rouge law firm Breazeale, Sachse & Wilson. “Up there (Haynesville), it's like a gold rush. Down here (Tuscaloosa), we hope it's in the very early stages, but it hasn't had nearly the impact that it's had up there. A totally different situation. But everyone is keeping their fingers crossed.”
Last November, representatives from Devon Energy approached East Feliciana Police Jury President Dennis Aucoin about leasing some of his land. Aucoin, who owns Slaughter Logging, has since leased 1,700 acres, a little more than half of which has been in his family for generations.
“I wanted to go ahead and get it leased because I wanted them to start drilling,” says Aucoin, who has already received letters from companies wanting to buy his royalties. “That's where the real money is.”
Other major landowners include the Jack Jones family in Norwood, Roy O. Martin of Indigo Minerals, the Bob Jones Family of Blairstown Plantation, Denkmann Associates and Jackson businessman Leroy Harvey.
What the future holds
Dismukes says Tuscaloosa Marine Shale could do for the metropolitan Baton Rouge area what the Barnett play has done for north-central Texas, west of the Dallas-Fort Worth Metroplex, and the Haynesville play in north Louisiana.
At its height, Haynesville was estimated to bring $10 billion annually into the state. Each rig, for example, brings with it some 300 jobs, and small businesses that serviced the oil and gas industry grew.
A recurrence in the Florida Parishes could literally change the landscape in poorer parishes like East Feliciana, where the population has decreased 5.1% from 2000-10 and the poverty rate is 19.7%, and St. Helena, where the poverty rate is 21.0%.
“All boats rise with the tide on something like this,” Dismukes says. “There's certainly lots of opportunities for people who aren't even mineral rights holders.”
But he cautions that if and when the play proves economically feasible, it will take time to see the benefits. More wells must be built, and more infrastructure must be in place before production begins in earnest. Demand for housing, office space and amenities like hotels and restaurants will suddenly be high in the typically sleepy cities and towns in the Florida Parishes.
West Feliciana Police Jury President Ken Dawson says his parish has formed an alliance with East Feliciana, Pointe Coupee and the City of Zachary to plan for the needs of the community in terms of roads, natural resources and other issues related to the drilling. The group recently met with counterparts from the Haynesville Shale to learn from their experiences.
Dawson says oil and gas production brings needed revenue to communities, a welcome sight in West Feliciana, which has been affected by depreciation of Entergy's River Bend Nuclear Generating Station.
“We don't want to curtail what the possibilities are,” he says. “But we want to make sure we are focused on protecting the public. We want ... the ordinances in place to make sure it's a win on both sides.”
Aucoin says the East Feliciana Police Jury now requires drilling companies to post a surety bond to cover any damage to the parish's roads.
“This is all brand new to us,” he says. “I'm hoping it's all going to be for the good.”
For now, the companies searching for oil in the Tuscaloosa Marine Shale are staying fairly quiet on the possibilities.
“We are in the early stages of drilling and in the process of evaluation,” says Chip Minty, spokesman for Devon, which has now acquired 250,000 acres. “The information we gain from these first wells will help us determine potential opportunities going forward. Until we complete this evaluation phase, it is difficult to reach definitive conclusions about the play's long-term impact.”
Goodrich Petroleum primarily is a natural gas firm; it has been active in the Haynesville Shale play, President/CEO Robert Turnham says. But it set out to find a shale oil play that made sense.
The company's first was in the Eagle Ford Shale in south Texas, which Turnham says has worked out well. Now it has leased 80,000 acres in the Tuscaloosa Marine Shale, where it is surrounded by Encana Oil & Gas and Devon Energy.
“It's just way too early to put a percentage or probability on if the play is going to work, and if so, how much recoverable reserves,” Turnham says. “But it certainly looks prospective, and we're very hopeful that it works.”
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