LITTLE ROCK — Southwestern Energy Co. has bet at least $150 million that there is more than 3 billion barrels of recoverable oil beneath the 500,000 acres it has leased in the Lower Smackover Brown Dense formation in south Arkansas and north Louisiana.
Complicating matters is the fact that the formation is not shale, which in recent years has yielded a bonanza of natural gas and oil locked in shale, thanks to modern drilling techniques.
The Brown Dense is primarily limestone, though the misnomer “shale” has been widely applied to it.
Limestone has different characteristics from shale, Steve Mueller, chief executive officer of Houston-based Southwestern Energy Co., said Thursday.
The Brown Dense was the source of oil that led to the Smackover boom in the 1920s, which has long-since peaked and leveled off at a low level of production.
It is possible that most of the oil leaked out of the formation into the Upper Smackover and fed that long ago boom, he said.
“That is the biggest question,” Mueller said. “Did enough of it stay behind or did all of [the oil] go in the conventional [pools] that were there, with very little getting left in the Brown Dense? The only way you’re going to find that out is to have four or five wells in the Brown Dense and see what they produce.”
Southwestern and several other oil and natural gas companies are testing horizontal drilling and hydraulic fracturing, or fracking, to see if the Brown Dense is a viable oil formation. Fracking is the process of injecting millions of gallons of water, mixed with sand and chemicals, to break up rock and release minerals.
The technique has led to the discovery of oil and natural gas fields throughout the country in recent years, including in the natural-gas producing Fayetteville Shale in north-central Arkansas.
The recent oil discoveries have been in shale formations such as the Eagle Ford Shale in south Texas and the Bakken Shale in Montana and the Dakotas. If there are 3 billion barrels of recoverable oil in the Brown Dense, it would be about the same amount that is estimated in the Bakken and Eagle Ford.
During a recent presentation at the Credit Suisse Energy Summit in Vail, Colo., Mueller said that on Southwestern’s 500,000 acres there could be 30 billion barrels of oil, with about 10 percent of that recoverable.
BlackRock Inc., the world’s largest money manager, is intrigued and has made major purchases of stock in companies with a stake in the Brown Dense - Southwestern and Houston-based Cabot Oil and Gas Corp., along with Irving, Texas-based Exxon Mobil subsidiary XTO Energy, and Devon Energy of Oklahoma City. The latter two companies have not spoken publicly about the Brown Dense, except to confirm they hold acreage in the area.
“There are formations that are predominantly shale and others are predominantly limestone,” said Steve Walkinshaw, president and a geologist with Madison, Miss.-based Vision Exploration. “The Brown Dense is mostly [limestone], but can contain an appreciable amount of clay and organic matter. The introduction of significant amounts of organic matter can facilitate the transformation of such shaley limestones into source rocks capable of generating [oil and natural gas].” Vision Exploration has studied the Smackover formation in Arkansas, Louisiana, Mississippi and Alabama, Walkinshaw said.
Robert Reynolds, owner of El Dorado-based Shuler Drilling Co., who has been working as an oil man in the Smackover field since 1979, said the Brown Dense got its name because of its characteristics. He said that the limestone is very dense compared with other strata of the Smackover, and that it is brown because of dead algae and other organic matter, which is the source of the oil.
“The more dense the rock is, the less porous it is .... If something has less porosity it would naturally contain less oil,” Reynolds said. “In the case of shales, the oil and gas is literally bound to these shale particles,” making it easier to extract through fracking, he said.
Shreveport-based Brammer Engineering was not successful with a horizontal well it drilled in the Lower Brown Dense in December 2010. The company only produced 49 barrels of oil per day. A company spokesman would not comment on the well for this article.
Fracking in rock formations similar to the Brown Dense has been successful in the Permian Basin in west Texas and New Mexico, Mueller said, citing the Wolfberry Oil Field, which is a mix of shale and limestone.
It would take at least 400 to 500 barrels of oil a day for the Brown Dense to be economical, Mueller said, adding that Southwestern’s first well in Columbia County cost about $8 million.
That well started producing Feb. 9. Mueller said it is too early to know what the rate is. He said it typically takes about 20 days to know how much oil will flow from a well. More information will be released during Southwestern’s earnings report due Feb. 27.
Southwestern’s stock price closed Friday on the New York Stock Exchange at $35.54, up 8 percent since it announced on Feb. 9 that production had started.
Mueller said at the Credit Suisse Energy Summit that it likely would be the end of the summer before there is an estimation about the formation’s success.
Cabot Oil and Gas has a permit application with the Arkansas Oil and Gas Commission to burn off natural gas, indicating it is ready to move on to one of the last stages of the drilling process. Devon Energy received a permit from the Louisiana Department of Natural Resources to transport oil from its well, but how much oil it has moved has not been reported.
Walkinshaw said another issue for drilling in the Brown Dense is saltwater, or brine, above and below the limestone formation. If artificial fractures from fracking reach the saltwater, the oil would be ruined.
“There has been a lot of concern about the ability of operators to perform a really big fracture stimulation of the Brown Dense, because there is a fear that the fractures would propagate upward or downward into the porous formations, causing huge volumes of saltwater to flow into the well bore,” he said. “This would be disastrous and would not only severely [affect] the ability of the well to drain oil from the Brown Dense, but also force the operator to devote considerable resources to proper disposal of the ... saltwater.”
Mueller said that is no longer as big a concern because fractures from the first well Southwestern drilled did not reach saltwater.
That leaves the big question of whether there is as much oil in the formation as the companies hope.
“It’s new, still really [unproved] at this point in time,” Walkinshaw said. “There are rumors running around regarding some of the first [wells] showing signs of promise, but they remain rumors at this point.”
Business, Pages 61 on 02/19/2012