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Oil, gas producers decoding complex Austin Chalk play with careful approach

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Oil, gas producers decoding complex Austin Chalk play with careful approach

Unconventional oil and gas producers have "cracked the code" of the Austin Chalk play in southwest Texas, an industry expert said, and hopes of replicating that success have led to a surge of activity in eastern Texas and Louisiana.

The Austin Chalk was initially exploited decades ago, but is in the early stages of a comeback thanks to horizontal drilling and hydraulic fracturing. Producers are hoping they can deliver similar results as those found in a part of Texas best known for having some of the Eagle Ford Shale's best wells.

"The best results for the Austin Chalk are in Karnes County, which is one of the sweet spots of the Eagle Ford," Brian Lidsky, managing director of the oil and gas research and transactions company PLS Inc., said in an interview. "The Austin Chalk sits right on top of the Eagle Ford."

SNL Image

The geology of the Austin Chalk play is believed to be similar in central Louisiana to high-production areas in southwest Texas.

Source: Society of Petroleum Engineers

Some companies that have explored the Austin Chalk oil and gas play have said drilling can be complex, as the thickness and porosity of the chalk can vary greatly. Lidsky said the chalk provides quality returns, but only if approached carefully.

"The key to the Austin Chalk is to find the base of the chalk that is not naturally fractured and find a certain type of rock porosity so you can drill them very precisely and frack them," he said. Producers familiar with drilling the Eagle Ford in Karnes County have been able to find the right rock in the Austin Chalk, as well.

EOG Resources Inc. has been the most active driller of the Austin Chalk in Karnes County, with 54 wells produced. Lidsky said the results from those wells show the play's renewed potential in the right places.

"[The wells have] a very impressive average rate of 3,900 [barrels of oil equivalent per day] online, 80% of which is oil. These are very, very economic wells," he said, noting that companies like Marathon Oil Corp., EnerVest Ltd., GeoSouthern Energy Corp. and Encana Corp. have also drilled into the play in the same area. "The industry has clearly cracked the code in Karnes County, with excellent results."

The Austin Chalk is rock from the Cretaceous Period a layer above the wider Eagle Ford Shale. As a chalk, it fractures more easily than shale. The play is thinner than the Eagle Ford and varies in permeability. Like the Eagle Ford, it stretches from the Mexican border across southern Texas into Louisiana.

Austin Chalk code-breaking is taking place in other parts of Texas, as well, with producers moving east to find geology similar to that of Karnes County. That has led them to the Brazos Valley, home of some of the state's oldest settlements but very little drilling activity.

"Development has moved up six counties, and the new center of the universe is in Washington County," Lidsky said. "The production there is gas and liquids-rich gas, with average production of 7 to 14 MMcf/d. The wells cost about $10 million to drill but are also very economic."

Producers believe that oil returns similar to those in Karnes County can be found in the parishes of central Louisiana, leading some of the same names active in southwest Texas even farther east.

"Leasing activity on the Louisiana side is being done by some very good, highly technical companies," Lidsky said. "EOG is in the middle-eastern Louisiana part of the play. Marathon leased up 180,000 acres at a pretty low entry price. Prices are rising from about $1,000 an acre to about $3,000 an acre, so there's some competitive leasing going on."