Mississippi Lime

JIM REDDEN, Contributing Editor

One of the 32 rigs SandRidge Energy is operating in the Oklahoma and Kansas sectors of the Mississippi Lime. Photo courtesy of SandRidge Energy.

Anyone who has ever bought a penny stock, and unloaded it a few weeks later for a very tidy profit, has a pretty good idea of the attraction that an eclectic bevy of independents has for the liquids-laden Mississippi Lime.

With its fairway underlying much of northern Oklahoma and southern Kansas, across the heart of the Anadarko basin, the carbonate-dominate play is characterized by shallow, low-cost wells that deliver reasonably impressive, primarily liquid production rates, making it the quintessential bargain basement of the North American shale scene. Shell is the lone major among the largely home-grown independents, who have flocked here en masse to tap what has been described as an incredibly varied, complex carbonate reservoir with comparatively high porosities and, owing to its Woodford Shale source rock with ample stacked-pay potential.

Like any emerging oily shale play, the Mississippian immediately draws comparisons to a certain North Dakota behemoth, with some of the more devout locals already taking to dubbing it the “New Bakken” and predicting that production will hit the 500,000-boed mark by 2020. However, while the “IHS Herold Mississippian Oil Play Regional Play Assessment” (released in August) provided a more objective evaluation, it nonetheless, concluded that while typical per-well results are weaker than those in the Bakken, it also costs significantly less to construct a Mississippi Lime prospect, giving a definite boost to the economics of the play.

Though questions remain over its long-term sustainability, the economics of the present are driving independents to go full bore, to take advantages of margins that they say are unattainable in any other U.S. shale play. Tom Ward, chairman and CEO of Oklahoma City’s SandRidge Energy, which is credited with nearly half of the horizontal Mississippian wells drilled to date, goes so far as to say that the play offers “some of the highest rates of return for horizontal drilling in the U.S. today.”

While U.S. independents dominate activity in the play, it also has gotten the attention of at least two international players, with China giant Sinopec upping its stake in the Mississippi Lime during late February by acquiring 425,000 net acres from predominant leaseholder Chesapeake Energy Corp. The $1.02-billion JV gives Sinopec a 50% undivided interest in 850,000 acres of Chesapeake’s net oil and gas leaseholdings in Oklahoma. Under the agreement, Chesapeake will continue as operator, with all future exploration and development costs shared proportionately, and no drilling carries involved.

Seeking cash to pay down debt, Chesapeake had announced earlier that it was either seeking a JV or would liquidate much of its Mississippi Lime holdings. The acquisition is the second for Sinopec, which formed a JV with Devon last year, that also encompassed the Mississippi Lime.

Compared to the Bakken, where wells can cost upwards of $11 million to drill and frac, Mississippi Lime wells rarely exceed $3.5 million from spud to completion. For Oklahoma operators, Mississippian wells also represent quite a hometown bargain, compared to the $9.5 million to $10 million it costs to drill an average Cana Woodford well to the southwest, although the latter’s typical production rates also are appreciably higher. With well depths ranging from 3,000 to 6,000 ft, drilling a Mississippian horizontal well requires only low-horsepower rigs, relatively vanilla drilling fluid systems, and other less cost-intensive products and services. Then, there are the intrinsic benefits of operating in an über-drilling-friendly environment, as reflected in Kansas, where the state appears ready to offer everything but free mud to encourage more operators to set up shop in its neck of the Mississippi Lime.

RIGS, PRODUCTION UP

The palpable appeal of the Mississippi Lime is illustrated in a drilling rig count that as of Feb. 18, 2013, had jumped conservatively by 32 active units over the same period a year earlier. Baker Hughes statistics show 92 rigs working in the core Oklahoma and Kansas sectors of the play—third of which are under the operation of SandRidge—compared to 60 at the same time last year, Fig. 1.

Fig. 1. A SandRidge Energy rig at work near Alva, Okla. Photo courtesy of SandRidge Energy.

Those statistics break down the Mississippian rig count into nine core northern Oklahoma counties, where an aggregate 88 rigs were actively drilling by mid-month. In Kansas, the Feb. 18 rig tally included only Barber, Harper and Sumner counties, with a combined four rigs. The Kansas Corporation Commission (KCC), the state’s chief regulator, said that when the play’s entire boundary is considered, including the northern extension, a total of 12 rigs were actually drilling horizontal wells statewide, as of the end of January.

Oil production, likewise, has increased year-on-year in both states, with API’s most recent estimate showing Oklahoma pumping 267,000 bpd, as of December, compared to 212,000 bpd in the previous year. Oklahoma also continued its standing as a predominant gas producer, with the latest figures from the U.S. Energy Information Administration (EIA) showing the state delivering 5.75 Bcfd in November, compared to 5.36 Bcfd in that month a year earlier. County-by-county production figures are unavailable from the Oklahoma Corporation Commission (OCC), the state’s oil and gas regulator, from which to extrapolate production trends in that state’s portion of the Mississippi Lime.

Across the border, the KCC said that total statewide oil production stood at around 3.6 million bbl/month as of Oct. 31, including 155,000 bbl/month pumped from some 88 horizontal wells, representing a staggering year-over–year increase. At the end of October 2011, the less than 15 horizontal wells onstream accounted for just over 25,000 bbl of the state’s cumulative monthly production. As for gas, Kansas producers delivered 2.4 Bcf/month at the end of October, of which 1.1 Bcf came from horizontal wellbores. Like oil, monthly gas production from lateral wellbores jumped considerably, from a miniscule volume of less than 50,000 Mcf booked at the end of October 2011.

In a related development, at least one company is betting on the play’s future sustainability. Texas-based JP Energy Development is laying its second pipeline, dedicated solely to moving Mississippi Lime crude to the central gathering network at Cushing, Okla. The company has already signed a 15-year takeaway agreement with Tug Hill Operating Co., a relative newcomer to the play, and is also opening the doors to other producers.

A PLAY REAWAKENED

The Mississippi Lime represents another footnote in the petroleum archives of once-prolific drilling areas believed to have been tapped out, only to re-emerge, when laterals and multi-stage fracing opened up reserves unreachable with vertical well paths. The play’s horizontal core spreads over some 7 million acres, straddling the border of north-central Oklahoma and south-central Kansas, Fig. 2. Yet, the entire play extends from the west, all the way north to Nebraska, giving it a total delineated area that covers roughly 11 million acres.

Fig. 2. The core of the Mississippian in north-central Oklahoma and south-central Kansas. Source: SandRidge Energy.

Atypical of what would be considered a mainstream shale, the Mississippi Lime generally is described as a continuous carbonate formation. The Mississippian formation, itself, underlies a layer of chert, tripolite or spiculite carbonates, known colloquially as the Mississippi Chat. The so-called Big Miss Chat is the uppermost member of the unconformity between the Pennsylvania and Mississippian-aged rocks. The Mississippian proper directly overlays the Woodward shale, which is the recognized source rock for most of Oklahoma’s oil production, Fig. 3.

Fig. 3. Geological model of the Mississippi Lime. Source: SandRidge Energy.

Elsewhere, in Kansas, the play’s geological structure changes significantly, depending on the part of the state in which you happen to be operating, said Lynn Watney, senior scientific fellow with the Kansas Geological Survey. Unlike the portion of the play in the southern part of the state, he said the Mississippian layer in western Kansas is thinner and tends to undulate.

Before horizontal drilling and multi-stage fracing, most of the more-than-14,000 largely vertical wells that had been drilled targeted the Chat, which remains a highly prospective reservoir. Chat reservoirs are widespread, heterogeneous in nature, and up to 80 ft thick. Moreover, net porosity thicknesses greater than 5% range from a few feet to greater than 40 ft.

Eagle Energy, one of the Mississippian first-movers, described the underlying and equally prospective Mississippi Lime as a deepwater-to-shallow marine limestone sequence, with interbedded dolomite facies that enhance the formation’s porosity and permeability. Eagle, which last year sold its local acreage to Houston’s Midstates Petroleum Co., said porosities in the core formation range from 5% to 15%, with water saturations from 25% to 60%. In addition, net porosity thickness greater than 5%, ranges from 10 to 100 ft, but averages between 30 and 50 ft.
Range Resources, which has built a sizeable acreage position on the Nemaha Uplift, said porosities within the overall play vary widely, from 30% to 40% in the Chat, to 3% to 5% in the lower Mississippian.

The higher porosities also come with higher water saturation. However, Dan Buller, global advisor for Halliburton Unconventional Reservoir Optimization, said operators could find their prospects even more enticing, if they are able to negotiate not-so-short-term lease extensions. “You have to think of the Mississippi Lime as being a hydrocarbon system,” he said. “You have the Woodford Shale at the bottom that’s throwing off the oil. You get though the Mississippi Lime, and then you have the Chat on top. All the porosity and water sets in the Chat, and even that has a partial oil saturation. If you could give it another 10 million years, you could fill that whole system with oil coming out of the Woodford.”

WATER, WELL PLACEMENT

Water, more specifically the exaggerated use thereof, is a common denominator among the shale plays. The Mississippi Lime is no different, but here the primary issue is not a lack of, but rather too much water. More specifically, the high water saturation levels, particularly in the uppermost Chat, force operators to spend a considerable percentage of their exploration budgets on salt water disposal wells that usually provide injection into the lower Arbuckle. Many operators actually drill water-disposal wells before spudding their prospects.

Halliburton’s Buller said that water saturation poses significant challenges to placing a well that targets the sweet spot and gives an operator the best chance to optimize reservoir drainage. “Everybody’s arguing where to target, because if you target too high, into or near the Chat, that’s where the water is,” he said. “I believe in drilling lower rather than higher. This play is all about water handling.”

The key, Buller said, is to precisely determine the effective porosities, which will go a long way toward ensuring that the well is steered into the most productive zones. To that end, he said Halliburton has effectively employed its Magnetic Resonance Imaging Logging (MRIL) technology in Mississippi Lime wells to provide the porosity measurements needed to help operators identify water-free zones and target previously hidden pay zones. The MRIL, Halliburton says, delivers direct measurements of lithology independent of porosity and pore sizes in openhole logging, ultimately improving the odds of a successful completion in a low-permeability reservoir. “With magnetic resonance, we are looking at every little spit of effective porosity in the lower Mississippi Lime,” Bueller said. “When you see them and have natural fractures down there, you can target lower rather than higher. Then, when you plan your frac design, you can pump your frac, so you don’t grow (fracture) height into the water.”

According to Schlumberger, since the play comprises multiple reservoir facies, including cherts, limestones and dolomites, in highly variable depositional environments, successful development depends on accurate reservoir characterization, coupled with effective completion and hydraulic fracturing design. The typical horizontal well design includes a combination of an openhole packer and perf-and-plug completion staging. Since hydraulic fractures in the Mississippi Lime are highly controlled by lithology and stress, Schlumberger said, a thorough understanding of geology, lithology, petrophysics, natural fracturing, geomechanics and sequence stratigraphy are key to targeting the best reservoir quality and maximizing production.

“Along with completion staging, good estimation of hydraulic fracture geometries to determine placement in the target zones—along with mitigation of growth into higher water saturation zones—has been a key part of stimulation design,” the company said in a statement.

WELCOME MATS OPEN

One issue that certainly does not affect Mississippi Lime operators is excessive interference from their respective state governments. Kansas has been especially welcoming of late, with state officials last year organizing tours of drilling sites in North Dakota and neighboring Oklahoma to better gauge the potential economic impact. Ultra-business-friendly Gov. Sam Brownback hosted a high-level Mississippi Lime conference on Nov. 27, in Hutchinson, where operator executives, in a roundtable discussion, extolled the trickle-down benefits of increased activity. The conference preceded, by a day, the Mississippi Lime Congress 2012, across the border in Oklahoma City.

“The Kansas Department of Commerce and several other state agencies are examining the potential economic development benefits, and challenges, of supporting oil and gas activity in the Mississippian Lime Play (MLP), and to ensure the state is prepared for all the related activity in the region,” the KCC stated on a dedicated website that the regulatory agency established for all things related to the Mississippi Lime. “The potential economic benefits to Kansas could be significant, resulting in hundreds of wells drilled, billions of dollars in investment, thousands of jobs, and industry activity in the MLP for the next 20 to 30 years.”

Kansas has been particularly aggressive, as it attempts to increase both horizontal permit-to-drill requests, and production from horizontal Mississippian wells. The KCC said new permits approved for horizontal wells, which had been oscillating for some time, tended to stabilize in January, with the issuance of 29 permits, up from the 12-month average of 25 new horizontal drilling permits issued, Fig. 4.

Fig. 4. Horizontal drilling in Kansas has nearly doubled over the past year. Source: Kansas Corporation Commission.

Fig. 5. SandRidge Energy’s 1.9-million-acre position is spread across the core of the play. Source: SandRidge Energy.