Good article from Energy News Australia yesterday for those interested. Come on Ron.
Reawakening the giant
Thursday, 24 September 2015
Haydn Black
THE old line that the best place to look for oil is where it has already been found certainly holds true, but perhaps in the quest for conventional oil the best places to hunt for hydrocarbons are old areas that once produced, but where the conventional wisdom says there is no longer any upside.
The Illinois Basin was once the third largest oil province in the US. Picture courtesy: Illinois State Geological Survey.
Strata-X chairman Ron Prefontaine, a Canadian-trained oil finder, has spent much of the past two decades doing just that, but it his latest project in an overlooked oil play in the US could be his most interesting adventure yet.
The Illinois Basin in the heartland of the US is an ideal place to go looking for oil: it is well connected to services, is primarily covered by flat lying corn fields and has refineries on its doorstep.
The ASX and TSX-Venture listed Strata-X has secured a significant presence in the basin, which underlies most of its namesake state, and which once hosted a thriving oil and gas business, but production became uneconomic the basin was left to languish for decades.
No one was interested, even in the high oil price environment, Prefontaine said.
He praises Strata-X managing director Tim Hoops for defining the Lingle oil play – a high margin, low risk, shallow oil project that appears to have slipped under the radar.
It sounds too good to be true, but the early work seems to bear out the basin’s potential.
Promise
The first well was extremely promising, substantially derisking recoveries with up to 300 barrels of oil per day in the Burkett-5-34 horizontal well.
Unfortunately, the well was over-fracced, and the last cracked into a deeper aquifer, causing salt water to flood into the well, so of 1000bbl per day production there is only a 6% oil cut.
The Kuhlig-1 is a brave 12km step-out appraisal well that aims to address those issues and increase production, and it looks like it may have worked, intersecting the 5m thick Lingle Formation with a reservoir pressure twice that seen in the earlier well.
The data from Kuhling-1 will now be used to engineer a horizontal well, Racoon Creek-1H, that will have a 1200m lateral well through the Lingle Formation that should perform much better than the first well.
If the next horizontal producer works, and all the data to date suggests it will, then it should then be a relatively simple matter of repeating the process, and gradually introducing improvements and reducing costs, which is pretty much the experience in the best of the shale plays.
But even as it is, the Lingle play should offer very high margins.
“Having worked in the deserts out here (in Australia) with Santos, with very high costs, I know how difficult it is, but in the US we can get services in a heartbeat, at relatively low cost, and there are a lot of people around with good experience,” Prefontaine said.
Development of the field will require funding, which Prefontaine believes will come from US private equity, but so far he’s put in $3.5 million of his own money to support the company, which means at 10% he is its largest shareholder. Hoops has 7%.
Strata-X claims to have the best database in the Illinois Basin, including its comprehensive land management system. The company has 40,000 acres (150sq.km) today, but could quadruple that “quite easily” because it knows who owns what rights.
That’s a significant advantage in the fiercely competitive US environment.
To date Strata-X has paid around $US100/acre for its unloved acreage, a fraction of the land values in areas such as the Permian Basin or Eagle Ford Shale.
The company has also spent more than a year doing the hard yards developing its technical understanding of the basin, which gives it another edge, in case the sharks are waiting to move in and make the Lingle a real estate play.
“We are probably a couple of years ahead of anyone else trying to get into this basin,” Prefontaine said.
History
The Palaeozoic-aged Illinois Basin started production in the late 1880s for John Rockerfeller’s Standard Oil, and since then has produced more than 4.3 billion barrels.
At one stage it was the third-most oil productive area in the US.
The basin has had three phases of life: 1905-1912, the 1940s and the 1950s.
In the early 1908 production peaked at 23MMbbl per annum, but declined into the 1930s. In the 1940s a war-inspired wave of exploration and production peaked at 140MMbbl per annum.
In the 1950s water flooding of old reservoirs caused a third peak.
It and the San Joachim Basin in California were the bedrocks of the US oil industry, but while the San Joachim Basin remains an area of interest by Occidental Petroleum and others, the Illinois Basin has slipped beneath notice, and where there has been interest it has targeted shale gas in the Devonian-Mississippian New Albany Shale.
Prefontaine, who cut his teeth in far northern Canada and spent much of the 1990s in the Cooper and Surat basins in Australia, admits he didn’t know much about it when Hoops came to him with the idea of picking up some acreage when Strata-X’s gas projects such as Sleeping Giant took a hit when the US gas price fell.
“It’s not that people did not leave a lot behind, but the oil price was sub-$US2/bbl until 1972-3, and most of the oil produced from this basin, well over 80-90% was done at sub-$2/bbl, so the threshold for economic development, and in the case of EOR, was much higher than it is today, even at today’s oil price,” he said.
The basin also seems to offer 36-40 degree API light oil, no matter what the depth, and most of it is above 1000m, which makes for cheap, efficient drilling.
A horizontal well today can be drilled and completed for $US2.5 million, with a 4000 foot lateral included.
The Lingle Formation is sourced from the New Albany Shale, which has generated some 300 billion barrels of oil. It has been the focus of shale drilling, but it is difficult to make shale gas work, because it is not over-pressured.
Strata-X is looking at the underlying conventional formation, with combined structural-stratigraphic traps.
In essence, the basin is a 500 square mile light oil accumulation. It has been penetrated with 100 wells, with two zones 10-20 feet thick, which is a classic horizontal play.
“Every well in that 500sq.mile produced some sort of oil, if not all of it was commercial,” Prefontaine said.
Following the drilling of Raccoon Creek-1H next year the well will be fracced over 15 stages and should produce at rates of 500-600bopd.
Total recoveries are unknown, but the company is hopeful of good numbers from the slightly fractured dolomite, but production should be less than $US20/bbl delivery to the refinery.
Secondary targets
The Lingle Formation isn’t the only game in town either, and there are a number of shallower plays the company aims to assess.
Some 1.5Bbbl of the basin’s past production has been produced from Strata-X’s areas, all from above 1000m, with past drilling limited by a sulphur level above the source rock which meant drillers of the day could not cement the wells – it would crumble apart.
Further, uncontrolled fracs achieved by dumping nitro-glycerine down the hole, caused its own issues leaving most of the resources behind.
Those issues can be addressed with modern technology.
Sitting above the source rock are multiple shallow zones: the under-pressured Aux Vases Formation which has produced over 400MMbbl and the Middle Mississippian St Genevieve, St Louis and Salem tight carbonate plays; all of which are secondary targets.
They have been examined in the past, and there has been a lot of by-passed pay. It’s not the immediate focus, but will be examined, Prefontaine said.
Reserves
Burkett-5-34 added 1.2MMbbl (2P) to Strata-X’s resource base from the Aux Vases Fm. It’s not a lot, but with EOR up to 60% of the oil left behind should be recoverable. Production costs should be $20/bbl.
The company aims to drill the Blue Spruce, Red Oak and Maple wells to derisk the Aux Vases, adding 5.8MMbbl in new reserves.
And there are 12 additional prospects mapped so far, and there could be more, but Strata-X has moved onto assessing the Middle Miss sands.
Strata-X has booked 23.6MMbbl prospective resource recoverable net, and at
June 30 had independent reserves of 1.55MMbbl largely at Blue Spruce, with a total resource estimate of 12.1 million barrels (net) in the Lingle Formation.
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