HORIZONTAL WOLFCAMP - Approach Resources - · PDF filehorizontal Wolfcamp in the southern Midland Basin to emerge as a major new unconventional ... EOG Resources El Paso (EP Energy)

HORIZONTALWOLFCAMP

Long ignored—even derided—the oil-saturated Wolfcamp shale inthe southern Midland Basin is rising to prominence.

ike Indiana Jones silhouetted by the sunas excavators shovel sand into the air,seeking the treasured Lost Ark of the

Covenant, Pioneer Natural Resources Co.’sPaul McDonald stands atop a rare outcroppingin an otherwise flat West Texas expanse. A rigframes the rising sun behind him 100 milessouth of Midland in Upton County. Visible formiles, like a beacon on the plains, this horizon-tally drilling rig too is seeking long-buried trea-sure—the Wolfcamp shale.

“It has the potential to be the largest resourceplay in the U.S.,” says McDonald, vice presi-dent of Pioneer’s Permian asset team. “The ge-ology is consistent over miles and miles ofexposure. This play is going to be massive.”

The story of the Permian Basin spans nearlya century as one of the oldest and most prolifichydrocarbon-producing basins in the U.S. Butin a world in which oil is cash-flow king andgas is bust, the heretofore overlooked Wolf-camp oil shale in the southern Midland Basin isfast garnering attention.

Why now? Until recently, Permian operatorsbelieved the Midland Basin ended at the OzonaArch uplift in southern Upton and Reagancounties, and certainly before Crockett Countybelow. The Wolfcamp formation, the sourcerock across the expanse of the Permian, haslong been believed to be nonexistent here, abald spot, so to speak, in geological journals.And while operators for decades have drilled

ARTICLE BYSTEVE TOON

PHOTOGRAPHY BYTOM FOX

LExcerpted from

April 2012Copyright©Hart EnergyPublishing LLP 1616 S. Voss Rd.Suite 1000Houston, TX 77057(713) 260-6400

into the deeper Canyon, Strawn and Ellen-burger gas formations, they simply bypassedlogging the middle intervals, believing themnonproductive. Some called the hard shale atrick zone. Data were sparse.

It was a small public Permian E&P—Ap-proach Resources Inc.—that revealed in a late-2010 analyst day report in New York that theMidland Basin extended further south intoCrockett County. The company came armedwith mud logs on more than 200 air-drilledwells with real-time shows that the Wolfcampcolumn was there, and thick. Very thick—up to1,200 feet.

“We saw you could correlate this zone over avery large interval, and it didn’t change,” saysApproach president and chief executive RossCraft. “That was the beauty of it. It was a no-

brainer at that point—the southern MidlandBasin did extend down into Crockett County.”

That revelation, combined with still-freshtechnology to effectively tap tight oil shale,opened the curtain to a new horizon. In additionto Approach, EOG Resources Inc. and El PasoCorp. soon followed, leading the charge in ex-ploring the southern Midland Basin Wolfcampoil shale. Other operators now testing the playinclude ConocoPhillips, Pioneer, LaredoPetroleum Holdings Inc., BHP Billiton, ApacheCorp., Devon Energy Corp. and HighmountExploration & Production LLC, among others.The neighborhood is mostly set with acreageheld by existing production or by recent lessorsat the University of Texas land sales. UT is amajor mineral holder here.

With data on more than 60 wells to date, re-sults have not disappointed. Initial production(IP) rates often exceed 1,000 barrels of oilequivalent (BOE) per day with a 90% oil andliquids mix, very styling today. “We’re at thatinflection point whereby our understanding ofthe Wolfcamp shale play will grow signifi-cantly,” says Irene Haas, an analyst with Wun-derlich Securities. She follows both Approachand EOG in the play.

Global Hunter Securities analyst Dan Morri-son, in a November research report, recognizedthe unfolding drama as well. “We expect thehorizontal Wolfcamp in the southern MidlandBasin to emerge as a major new unconventionaloil play in the U.S.,” he said.

Growing expectationsTo hear operators talk about it, Wolfcamp

geology in this part of the Midland Basin is justabout perfect for an oil-shale wish list: high intotal organic content; filled with silica andtherefore brittle; having good porosity and nat-ural fractures; and in the optimal thermal matu-rity window to produce oil.

“It is the ideal package when it comes to fra-cability and productivity,” says Tim Dove,president and chief operating officer for Pio-neer Natural Resources. Adds Haas, “It has theright combination of key ingredients.”

To fan the excitement, positive well resultsare trending northward into the basin, openingspeculation as to the potential areal breadth ofthe play. Haas says current activity confirmseconomic results in Crockett, Irion, Reagan andUpton counties. Permitting data suggest resultsshould be forthcoming from Glasscock andSchleicher counties. Counties to watch: Ster-ling, Midland, Martin, Dawson, Howard andBorden.

“Assuming a 25-mile-wide fairway, the trendcould cover a 1,500-square-mile area, or almost1 million acres,” she says. However, “we areconvinced the play might be much larger.There’s no reason why it shouldn’t work as yougo north—in theory. Drilling results will needto validate this idea.”

Acreage values are trending northward aswell. At the high point, ConocoPhillips paid

Top, leading thecharge into thesouthern MidlandBasin Wolfcampshale, ApproachResourcespresident andchief executiveRoss Craft says, “We think we’llbe here for a longtime.” Above,“We’re at thatinflection pointwhereby ourunderstanding ofthe Wolfcampshale play will growsignificantly,”says Irene Haas,an analyst withWunderlichSecurities.

Overleaf, a viewof the southernMidland Basinfrom PioneerNaturalResources’University 3-31#4H welltargeting theWolfcamp shalein Upton County,Texas. Left,Fisher LeaseServices workersconstruct thefree-waterknockout for atank batterydownhill ofPatterson-UTIRig #208 drillingfor Pioneer nearRankin, Texas.

nearly $6,000 per acre in September 2011 viathe University of Texas lease sale, upping itsholdings to 70,000 acres in Crockett, Upton andReagan counties.

Global Hunter’s Morrison dared to step outand suggest the horizontal Wolfcamp couldrival the mighty Bakken oil-shale play in NorthDakota. “The most recent well results in theplay have indicated a potential step functionshift in well performance and suggest the playmay not only be economic, but wildly so.”With potential for high production rates of1,500 BOE per day, “Back-of–the-envelopemath suggests Bakken-esque potential for theplay.”

Global Hunter estimates the play’s potentialrecoverable resources range from 4.2- to 8.8billion BOE, “and probably working higherover time.” He notes the USGS estimate forBakken recoverable resources of up to 4.3 bil-lion BOE.

“Indeed, things may be bigger in Texas.”

How to slice itApproach Resource’s Ross Craft is a self-de-

scribed tight-sands gas man, having built andsold two such Permian-focused companies be-fore starting Approach in 2004. So when hefound himself with an unanticipated 1,200-footcolumn of oil-saturated Wolfcamp shale belowhis holdings, he knew he needed help. He

called on Qingming Yang.Yang, who holds a doctorate in geology, had

been global exploration manager for PioneerNatural Resources, and most recently the leadfor Pioneer’s Eagle Ford shale technical team.He understood shales from around the world.Craft tapped him in 2009 and handed him thesuite of logs to develop an evaluation plan forthe company’s 145,000 net acres in CrockettCounty.

“One thing about shale plays, especially oilyshale plays, is everything has to line up per-fectly,” Craft says. “We had no idea if this wasgoing to work.”

Adding to the complexity of the subsurfacemystery, the Clearfork shelf sits on top of theWolfcamp here, and the logs looked just as fa-vorable as the Wolfcamp shows. “When we didthe analysis, we realized we have more than1,000 feet of Wolfcamp pay, and another 1,500feet of Clearfork pay,” says Yang. “That’s2,500 feet of column.”

Other proven shale plays typically fall be-tween 150 and 300 feet of thickness, and thewhole zone can be effectively stimulated froma single lateral wellbore. Not this column. Theproblem of too much pay produced a dilemma:“How are we going to develop this?” Yang sur-mised. “This is unique.”

Like the Wolfberry fields to the north,which commingle production from forma-tions between the Spraberry and Wolf-

camp zones, Approach felt this play too couldbe developed vertically. “When you have 2,500feet of column, it’s obvious you can’t drain itwith a horizontal well,” Craft says. He coinedthe term “Wolffork,” and set about a verticalevaluation program.

Today, Approach’s vertical Wolffork wellstypically IP at 140 BOE per day with an esti-mated ultimate recovery (EUR) of 110,000 bar-rels equivalent. At a cost of $1.2 million perwell, the return is 35%. “That’s exceptional,”Craft says. “At 10 to 20 acres per well, you candrill a lot of wells.” The company has movedthe vertical program from pilot to development.

But…the highly fractured nature of the rockdiminishes the drainage pattern, Approach dis-covered. “The rock is so fractured that it’s al-most impossible to get out an effective distanceof more than five to seven acres per well with afrac job,” he deduces. “It’s clear you’re not re-covering a whole lot of reserves.”

Approach estimated resource in place persection of 118 million BOE for Wolfcamp vol-umes, and 182 million BOE adding the Clear-fork. The question remained of how to enhancethe recovery factor.

Another first mover in the play, EOG Re-sources, was having success with its horizontalprogram just four miles to the north. With twoEOG wells as a guide, Approach followed suit.

Approach identifies four separate “benches”within the Wolfcamp: The A bench and Bbench correspond to what other operators termthe upper and middle Wolfcamp, and the C and

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Above, Tim Dove,Pioneer NaturalResourcespresident andchief operatingofficer, says theWolfcamp shaleis the “idealpackage” forfracability andproductivity.

D benches correspond to the lower Wolfcamp.Initial laterals were drilled into the B bench,same as EOG’s.

The company now has more than a dozenhorizontal wells completed in the B bench. Thelatest two wells IP’d at 1,310 and 1,136 BOEper day, producing 94% liquids. The first wasstimulated with 34 stages in a 7,750-foot lat-eral; the second with 28 stages and a 7,700 footlateral. Estimated ultimate recoveries (EURs)for recent wells on production have increased to450,000 BOE, generating a 45% rate of return.

Because the Wolfcamp is normal pressured,unlike other commercial shale plays that areoverpressured, Approach pumps slickwater flu-ids over gels in its completions, believing thegel plugs off the complex fractures. “You don’thave the temperature and pressure to breakdown the gel,” says Craft. It has also tightenedstages to 250 feet to reduce stimulation gapsbased on microseismic.

Now, “We believe we have enough data forthe B bench to turn it to development,” Yangsays.

That still leaves a lot of Wolfcamp untapped.After evaluating core results, the company nowbelieves the A and C benches show as muchhydrocarbon in place as the B bench. Approachtested its first C bench well in the first quarter.With an IP of 541 BOE per day, results wereinconclusive, with only 18 of 28 stages effec-tively stimulated. The company plans to recom-

plete the remaining stages. Pilot wells are alsoplanned into the A bench this year.

“Based on early assessment, we have everyreason to believe those benches are going to besuccessful,” says Craft.

Craft sees the play being developed with acombination of vertical and horizontal wells,with a complex integration of stacked laterals.He envisions a single pad targeting the A benchwith three wells each aimed north and south.The next six-well pad will target the B bench,and another, the C. Vertical Wolffork wells willbe interspersed to capture resource between theunstimulated wellbore curves and from theClearfork zone. This configuration maximizesreturn on investment, “because the time to getthese wells online will be lessened.”

Approach increased its capex by $30 millionto $190 million and added a second horizontalrig with one vertical rig in the play. It planssome 25 horizontal wells in 2012, and about 50vertical. With more than 1,800 Wolffork verti-cals and 500 horizontal Wolfcamp locationsidentified, “we think we’re going to be in thisplay for some time,” says Craft.

First moversWith the Wolfcamp now earmarked as a

growth driver for the company, EOG is an ag-gressive first-mover, following into the playright behind Approach. Now with 38 horizontalwells drilled, it is doubling down this year,

Top, Andrew(Tiny) Heathmans thecontrols ofPatterson-UTI’sRig #208 drillingPioneer’sUniversity 3-31#4H in UptonCounty, Texas.Above, faced with2,500 feet ofpotential paycolumn, QingmingYang, ApproachResourcesexecutive vicepresident ofbusinessdevelopment andgeosciences,created a uniqueplan.

ramping to four rigs from two. Its 131,400-acreposition straddles the Irion and Crockett countyline, with additional leasehold in central Rea-gan County.

“EOG’s results have been great,” chief exec-utive Mark Papa touted in a recent quarterlyconference call. “I don’t know whether that’sdue to better acreage or better technology, butthe results speak for themselves.”

All of the company’s early wells targeted themiddle Wolfcamp, with recent results produc-ing from 700 to 1,700 barrels of oil with a gas-liquids and rich-gas mix. These wells weredrilled with 7,000- to 7,500-foot laterals andcompleted with 30 to 34 stages. Newer wellshave laterals averaging 7,600 feet.

EOG considers the play a combo, reporting aratio of 42% oil, 30% gas liquids and 28% richgas. Published EURs are 280,000 BOE per

well, a conservative number per the company.The after-tax rate of return for a $5.5-millionwell is 55%.

The company recently debuted its first welltargeting the upper Wolfcamp zone, located inReagan County. That well, described as a full-lateral upper zone test, flowed at 883 barrels ofliquids. “Very encouraging,” said chief operat-ing officer Gary Thomas. “We have plans to doadditional testing this year” in the upper andlower zones.

El Paso Corp., too, recognized the potentialearly and racked up 138,000 acres in a 2010university lease sale in northern Crockett, Irionand Reagan counties, paying an average $1,500per acre. The company drilled 13 horizontalWolfcamp wells in 2011. The last one report-edly flowed at 1,369 BOE per day.

However, due to El Paso’s pending E&P

“It’s aubiquitousplay. It’sgoing to bevery prolific.”Tim Dove,PioneerNaturalResources

which it has drilled 7,000 with 20,000 more togo. The full power of its capex is deployed hereat $1.5 billion for vertical wells, 60% of its totalexpenditure.

So the company deems the revelation of thecommerciality of the horizontal Wolfcamp playon some 200,000 idle acres on the southern endof its holdings in Upton, Reagan and Irioncounties to be pure upside—with extreme po-tential. “It became clear there was a burgeoningnew play down there,” says Dove. Seeing offsetoperators testing the play a bit further south, heacknowledges, “The well results were quite ex-cellent.”

Here, where the Spraberry sands thin and areless economically viable, old shallow produc-tion has held most of this acreage in Pioneer’sportfolio for decades. A drilling rig was a dis-tant memory to mineral holders. But with50,000 acres picked up in a university lease salefive years past now exposed to expiration, Pio-neer jumped into action. Awakened to the po-tential, this is where the operator isconcentrating its efforts over the next twoyears.

“We want to make sure to preserve the valueof those leases,” Dove emphasizes.

Why the urgency now? Based on his uniqueperspective, the horizontal Wolfcamp “couldbecome one of the most significant plays basedon our current understanding of it.” Dove evengoes as far as putting the “game-changer” tagon the play.

With thousands of cores, log data andpetrophysics from its massive verticalcampaign in Pioneer’s databank,

Dove suggests a minimum of 400,000 companyacres are prospective for commercial produc-tion from the play, and he would not be sur-prised if the entire 900,000 prove productiveover time.

The play is immense, he declares. “The arealextent of this and the productivity potentialmeasured in oil in place is so large that it’sgoing to be one of the truly burgeoning shaleplays in the U.S.” And it’s oil, which, in a$100-per-barrel oil environment, is meaningful,he says.

In third-quarter 2011, the company drilled itsfirst horizontal well, located in Upton County,with a 5,800-foot lateral and 30 stages 200 feetapart. It produced 854 BOE on a 24-hour re-stricted rate and averaged 643 BOE over 30days. Pioneer’s second well, also in UptonCounty and with a 5,800-foot lateral, mirroredthe first: 807 BOE per day IP (75% oil, 18%natural gas liquids, 8% gas) and an average 30-day rate of 677 BOE per day. Both wells werecompleted pumping 220,000 pounds of sandand 300,000 gallons of slickwater fluids perstage.

“They are exceeding our expectations,” hesays.

These wells—60 miles northwest of most in-

spin-off to Apollo Global Management fromthe Kinder-Morgan pipeline merger, it hasshifted from two rigs to one and is in mainte-nance mode until new marching orders are de-livered post-acquisition. No new results havebeen released since August 2011.

At the time it entered the play, El Paso E&Ppresident Brent Smolik called it “a promisingnew oil shale” and said, “Our acreage acquisi-tion is the culmination of an extensive regionalstudy by our technical team, and we expect it tobecome a new oil-focused core area.”

New life for idle acresDallas-based Pioneer Natural Resources is

the monster of the midway with a 900,000-acrefootprint down the axis of the Midland Basin.Here the company is in full development modemanufacturing vertical Spraberry wells, of

A dramatic newday dawns atPatterson-UTI Rig#208. Pioneer’sthird Wolfcampshale horizontalwell will featurea 7,500-footlateral with up to30 fracturestages.

dustry activity and the first horizontal Wolf-camp test wells in Upton County—derisk theplay northward.

The company is landing the lateral in theupper zone of the middle Wolfcamp, just belowthe Tippet shale that divides the middle andupper Wolfcamp members. Microseismic con-firms the fracture stimulation is reaching thefull 400 feet of thickness above and below thewellbore of each Wolfcamp zone for 800 feetof effective stimulation.

The next two wells in Reagan County to theeast will be drilled with 7,000-foot laterals and35 stages, each 200 feet apart. Beyond extend-ing lateral lengths, Dove says the company isnot experimenting with completions so as tobetter understand predictability. “We’ll do thatafter establishing the productivity of the wells.”

Pioneer projects ultimate recoveries fromWolfcamp horizontals in the range of 350,000to 500,000 BOE, but the first two wells alreadylook to exceed the average of those. “The firstwell has already made 45,000 barrels in the first90 days,” notes Dove. “That’s a good sign.”

Dove estimates the company has exposure tomore than 1 billion barrels of net resource po-tential from the upper and middle Wolfcampalone. That doesn’t consider potential in thelower Wolfcamp, nor the Strawn, Atoka, Jo-Mill or Mississippian intervals that could be vi-able horizontal targets.

The horizontal Wolfcamp will be the fourthTexas-based growth play for Pioneer. Having

just brought in a third rig for Wolfcamp, thecompany plans to have up to seven rigs runningby year-end, going to 10 in 2013. That pacewill result in up to 35 wells drilled this year,topping at 80 to 90 by year-end 2013 to suc-cessfully hold any expiring acreage. Its ex-pected 2012 average production rate: 2,000barrels per day.

The $275 million budgeted this year, includ-ing a 260-square-mile, 3-D seismic program,represents just over 10% of Pioneer’s 2012budget. “This horizontal Wolfcamp play willstart taking a growing proportion,” Dove antici-pates. At an average $6.5 million modeled perwell, with 2,900 horizontal locations on 140-acre spacing, he projects $20 billion will beneeded to develop just 400,000 acres.

Taking aimVast resources in the Haynesville and Eagle

Ford shales—packaged with an experiencedshale team—prompted resources conglomerateBHP Billiton to buy U.S. independent Petro-hawk Energy Corp. last year. It turns out theAustralian company received a housewarminggift upon arrival as well: 325,000 undevelopedacres in the Permian Basin. Two-thirds are inthe West Texas Delaware Basin where thecompany has four rigs testing horizontal plays,but a 50,000-acre gem lies in the southern Mid-land Basin in Reagan and Crockett counties.

Dick Stoneburner, the leader of Petrohawk’sshale team and now president of BHP Billiton

In MidlandCounty, Texas, afew miles northof its Wolfcampshale drilling,Pioneer isconcentratingcapex on itsverticalWolfberryprogram. Thecompany-ownedfrac operationsalso servicePioneer’sgrowinghorizontalWolfcampactivities.

Petroleum’s North America shale productiondivision, believes the company has a sure thingin the Wolfcamp shale.

“We have had the luxury of watchingresults that are literally across thefence line from our acreage in

some instances, and believe the play has beenlargely derisked without any operations on ourpart.”

That was until early this year. The companyhas just completed coring and logging opera-tions in its first pilot hole drilled in CrockettCounty, and is now drilling out the horizontal.Having watched peers EOG Resources, El Pasoand Approach Resources nearby, BHP Billi-ton’s first well into the Wolfcamp straight outof the batter’s box features a 7,500-foot lateralwith 30 stages. And while Stoneburner did notspecifically identify the location of the lateralplacement within the Wolfcamp, he did con-firm the initial target is the same as other opera-tors in the area, which is the middle and uppersections of the Wolfcamp.

“This is an area where longer laterals haveresulted in proportionally increased IP rates,and we feel like increased EURs as well. It’sclear the primary target by industry is a provenreservoir.”

Stoneburner, a geologist by trade, identifiesall of the shale characteristics he likes to seefrom the logging operation: good porosity, highresistivity and brittleness. He awaits resultsfrom the core. “It’s source rock,” he says. “It

has all the earmarks we like to see when look-ing at petrophysical data.”

And the Wolfcamp is thick, some 900 feetwhere BHP Billiton is drilling. That presents itsown challenge. “You’re not going to drain thatwith one horizontal lateral,” he says. “You maydrain 200 to 300 feet, but to effectively drainthat much rock, it’s going to take multiple well-bores.”

BHP Billiton’s objective with its extensivepetrophysical and coring operation is to identifyjust how many additional targets are in this sec-tion. “There is a good chance the overall Wolf-camp interval will offer multiple horizontaltargets as we learn more about the rock.”

Unlike some other tests in the play using ver-tical wells, Stoneburner expects horizontalwellbore economics will prove superior in BHPBilliton’s model. “We’re not generally sold onthe vertical plays,” he says.

As part of Petrohawk’s former portfolio, thePermian position was cash constrained and un-touched. Under BHP Billiton, financial fire-power is locked and loaded. “Our currentworkforce, with the financial wherewithal ofBHP Billiton, is providing a combination that isallowing the acceleration of the asset that wewould not have been able to do at Petrohawk.”

BHP Billiton is presently moving in a secondnew-build rig onto the acreage, with sixplanned by year-end. “We intend to acceleratethe program significantly in the near term,”Stoneburner confirms. “We’re convinced it is a

Crew membersmonitor hydraulicpumping of XBCGiddings Estate#1022, a PioneerWolfberry well.

DickStoneburner,president of BHPBillitonPetroleum’sNorth Americashale productiondivision, believesthe company hasa sure thing inthe Wolfcampshale.

viable play that has proven economics. We aregoing to be aggressive about developing it.”

BHP Billiton also holds more than 60,000acres in the northern Midland Basin primarily inTerry and Lynn counties. Stoneburner believesthe Wolfcamp horizontal play remains prospec-tive this far north of current activity. “It has ahigher risk component, mainly because therehas been minimal activity to date. Most of theoperators are taking a wait-and-see approach.”For now, BHP Billiton is doing the same.

“It’s clearly a commercial play,” saysStoneburner of the known target interval, butadds that upside extends far beyond EURs inthat one proven member. “It’s a multi-pay op-portunity within one interval. The stacked com-ponent is important to upside potential. Withour expertise, we’re going to take that further.”

The ClineNumerous horizontal targets are emerging in

the Permian Basin, which sometimes makes ithard to choose a favorite. With 135,000 acres inReagan and Glasscock counties prospective forboth the Wolfcamp shale and deeper Clineshale, Laredo Petroleum leads with the Cline.

“The Cline looks as good as or maybeslightly better than the Wolfcamp,” says Laredopresident Randy Foutch. “And it holds the en-tire Wolfcamp section by production.”

Foutch formed Laredo in 2006, his thirdstart-up, and took the company public in De-cember. Laredo doubled its Permian position inJune 2011 when it acquired Broad Oak Energy,a company Foutch knew well as he had sat onthe board previously.

Laredo set out to explore the Strawn, butfound the Cline in the cores and began leasingaggressively. The company prides itself on sci-ence work, and has drilled some 20 vertical testwells and collected 2,200 feet of whole coresamples and 400 sidewall cores.

Horizontal Cline drilling began in 2008.Now, with more than 20 wells down in theCline, primarily in Glasscock County, Laredoconsiders its central acreage in development.

The company modeled its horizontal pro-gram for 4,000-foot laterals, 10 frac stages andthree perforation clusters per stage, but hassince extended laterals and condensed fracs.Results have responded favorably. “We’re see-ing early indications that make us want to con-tinue to optimize, but we’re a long way fromknowing the answer.”

Questions abound as to whether the Wolf-camp shale is prospective in northern Reaganand into Glasscock counties where Laredo re-sides. With four upper Wolfcamp horizontalwells drilled in Reagan County but in advanceof announced results, Foutch confirmed IPshere compare favorably with other publicly an-nounced Wolfcamp results. “It’s a programwe’re going to expand,” he says. Laredo wasscheduled to announce results in late March,after press time.

Foutch directly compares the Cline and

Wolfcamp to geological stars the Bakken,Eagle Ford and Utica shales. “We see a lot ofsimilarities. I think we’re going to surprise withhow good this is—it may be better than those.”

Laredo’s horizontal program is intermingledwith its 12-rig vertical Wolfberry activity, inwhich it has drilled more than 600 wells on thesame acreage. Technical data from these wellsis evaluated for the horizontal program.

The company has four rigs dedicated to hor-izontal drilling moving between the two shaletargets. Both horizons are deemed productiveacross the 80-mile-long and 20-mile-wide po-sition. “We’re going to rotate the rigs betweenthe Cline and Wolfcamp A, B and C,” Foutchsays. He anticipates adding another two tofour rigs to the program. The company pro-jects 5,700 horizontal opportunities with 160-acre spacing on its holdings. This is inaddition to 3,000 vertical locations woven intothe grid.

Rates of return, while as-yet undisclosed, arein line with industry, he says. “Laredo begandoing science in these intervals in 2008. We ex-pect there to be a significant future pay-offfrom knowing what’s out here.”

To date, Laredo has zone tested the lowerWolfcamp in three vertical wells, and the mid-dle Wolfcamp remains untested, although thecompany has analyzed 38 cores.

“I don’t know how long it is going to take usto define the true value, but we’re not going tostick to just the Cline or just the upper Wolf-

pache Corp., the second largest pro-ducer in the Permian, is laying downhorizontal wells across all of its Per-

mian holdings and producing economic re-sults. But, surprisingly, it is hydraulicallyfracturing waterflooded properties on theCentral Basin Platform employing horizon-tal laterals.

Fields that have been producing for 90years, such as TXL South, North McElroyand Shafter Lake, are experiencing reinvigo-rated production. “Vertical wells in McElroyField were drilled just five acres apart andwere producing a 1.5% oil cut. We’re nowdrilling horizontal wells with up to 5,000-foot laterals in a diagonal pattern to miss thevertical wells, and we’re bringing them on ata 10% to 15% oil cut,” says Apache Permianregional vice president John Christmann.“They meet our rate-of-return hurdles.

“We’re taking some of these fields backto levels they haven’t seen in 15 years,” saysChristmann. “It tells us as an industry ourwaterfloods have not been as effective as wemight have thought.”

TO FRAC AWATERFLOODA

Facing page:Frac sandcatches airbefore beingpumped into avertical Wolfberrycompletion inMidland County,Texas. Pioneeranticipates all ofits 900,000 acresin the MidlandBasin may beprospective forthe Wolfcampshale horizontalplay.

camp. We are going to try diligently and me-thodically over the next several years to testthese other zones,” including the B and Cbenches.

A 30-year veteran, Foutch nonetheless isawed. “I don’t think I’ve ever seen an opportu-nity set like Laredo has captured in the Per-mian. I’ve never seen that much potential in mycareer. We’re very excited.”

One shale of manyTo Houston-based Apache Corp., advanced

horizontal drilling technology opens up a feastof new resource opportunity on its 1.5-million-net-acre Permian position, to be high-graded byeconomics. In the Midland Basin, motivated byticking leasehold and like counterpart Laredo,the company identified the Cline shale in whichto target its first horizontal foray here.

Apache came by its 100,000-acre Deadwoodproperty in Glasscock County when it acquiredMariner Energy in 2010. With lease expirationslooming, it dedicated half of its $1.2-billionPermian budget here in 2011. Thirteen rigs de-scended on the play, churning out 200 wells lastyear with vertical columns commingling Wolf-camp, Cline, Strawn and Fusselman.

Amidst the vertical flurry, the companylanded four horizontal wells into the Clineformation.

“When we analyzed which zones were con-tributing more, the Cline shale emerged as a po-tential horizontal target,” says JohnChristmann, Apache regional vice president forthe Permian.

Of the three Clines completed, 30-day stabi-lized production rates were 300 barrels of oiland 200 Mcf (thousand cubic feet) of gas perday on 5,500-foot laterals, with expected EURsof 300,000 BOE per well. Four more areplanned this year, with further horizontal testsinto the Wolfcamp and Atoka Barnett shales.

Multiple horizontal targets are not a conun-drum, he says, but an opportunity. “We’regoing to rank those and do our best projects.”With 565 locations identified, he envisionsweaving the horizontals amongst the verticalsand skipping frac stages where they overlap.

Looking south, Apache is indeed building a

Wolfcamp shale position at present in Irion andReagan counties. It now has a concentrated25,000-acre core in Irion, “right where industryis located,” in which it has drilled and is com-pleting its first well. The Scott-Sugg well in theKetchum Mountain area will debut with a 7,000-foot lateral, 24 stages, 6 million pounds of sandand 200,000 barrels of fluid (or 250,000 poundsof sand and 8,300 barrels of fluid per stage). Thetarget is the upper portion of lower Wolfcampwith 500 feet of zone.

Apache’s second and third Wolfcamp wells,currently drilling, will sport 9,000-foot laterals.The company has two rigs here with plans forat least six wells in 2012, likely more, Christ-mann suggests. He sees 150 locations here.

Next door in Reagan and Upton counties,Apache has announced a 31,000-acreposition, a number Christmann reports

is “very conservative.” The company mapshows plenty of acreage swatches with “poten-tial exposure that we’re still looking to qualify,”he says.

“We’re going to have a big Wolfcamp shaleposition,” Christmann assures. “We see atremendous resource here. When you look atthe amount of capital and the number of hori-zontals, it doesn’t take many acres with poten-tially multiple zones to have an area that isgoing to be significant.”

With a broad international portfolio, whatsignificance might the Wolfcamp play have toApache? “The numbers are going to competewell, but it’s just one of many plays in thisbasin we’re exposed to that will create hun-dreds of locations. It’s one of many target zonesout there.”

Wunderlich’s Haas says it is just a matter oftime before operators ramp up activity targetingthe Wolfcamp shale. Permitting activity sug-gests 2012 will see an explosion of drilling.

“We expect another 100 to 200 horizontalwells will be drilled in 2012,” she predicts. “Byyear-end, we’ll be in a position to have a betterassessment of what is the real potential.

“It’s a ubiquitous play,” says Pioneer’s Dove.“It’s going to be very prolific.” �

For more on the Permian Basin, see OilandGasInvestor.com. .

An eclectic mixof oilfieldparaphernaliaadorns the wallsof KD’s Bar-B-Q inMidland, Texas, a popular lunchstop for industryworkers.Facing page,dusk closes thecurtain onanother day inthe southernMidland Basinnear Rankin,Texas, where theWolfcamp shalemay become thelargest oil play inthe U.S.,according toearly movers.