Houston — ConocoPhillips has drilled two wells in the Austin Chalk formation of central Louisiana, and may be able to judge the potential of the play by the end of the year, the company said Tuesday.
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The wells are sited on the company's position in the emerging play, one where peers Marathon Oil and EOG Resources also have acreage.
And while so far ConocoPhillips likes what it sees, the company needs to finish up an initial four-well program before any releasing results and providing more information on the play's potential, company CEO Ryan Lance said at a press conference following the company's annual shareholder meeting.
"We probably won't have results until later in the year," he said, adding "we're still optimistic" about the play.
Completions are being run on the first well and ConocoPhillips is starting to flow test it, Lance said, while the second well is drilled but not completed. A third well is in process of being drilled.
'LOT OF UNCERTAINTY' IN EMERGING PLAYS
Lance cautioned the Austin Chalk has "a lot of uncertainty," as is the case with any new play.
"These unconventional [plays] can quickly fail fast and then you move onto something else," he said. "That's what's different from deepwater, for instance, which can take a year or more to figure out what you have."
The Austin Chalk formation, found in a wave-shaped span from South Texas through East Texas and into Louisiana, has been produced conventionally for decades.
But as the shale boom in the last decade has taken hold, companies are heading back into old areas and drilling and completing the wells horizontally.
ConocoPhillips took a position in the Austin Chalk early in 2018, saying at the time it had acquired about 211,000 net acres in the play.
Also, the company, which exited deepwater exploration in the Gulf of Mexico, might consider a return to that arena if all-in costs drop below current levels, but so far it is not competitive with the company's current portfolio, Lance said.
ConocoPhillips, which in the last few years has lowered its cost of capital below $30/b, has done much work to get itself in a position where it can compete in the current world of volatile oil prices.
CONOCOPHILLIPS STILL OPERATES A US GULF FIELD
The company was a Gulf of Mexico operator, but exited exploration there by 2017. The company still has 14,000 b/d of oil equivalent production from that arena, where it operates the deepwater Magnolia field and is a partner in two others - Shell's Ursa/Princess and Anadarko Petroleum's K2. Of its Gulf of Mexico production, 11,000 b/d is oil.
In recent years, the handful of large explorers still operating in the US Gulf - notably Chevron, BP, Shell and Equinor, formerly known as Statoil - have pared down costs through technology and efficiencies. They and smaller competitors say they are receiving good returns on investments in their operating spheres.
Still, ConocoPhillips considers the all-in price tag of that arena uncompetitive with its $30/b cost of supply, Lance said.
"Some areas are getting low enough to be competitive in the portfolio," he said. "But we still don't see the reductions and technology yet keeping up with the cost of supply inherent in our portfolio today."
"We continue to watch ... improvements and technology," he said, adding that development costs may be low, but "when you wrap up all the costs to acquire acreage, do the exploration, [general and administrative] appraisal and development ... I'd argue it's not competitive."
-- Starr Spencer, firstname.lastname@example.org
-- Edited by Keiron Greenhalgh, email@example.com
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