Future Looks Bright for Cline Shale Potential

Musings: Latest Economic Statistics Are Not Good for Energy Market

The Eagle Ford shale play in South Texas has received a great deal of attention in recent years, but interest has also grown in the past two years in the Cline shale play in West Texas' Permian Basin, according to energy industry officials.

Found at a depth of about 9,000 feet and covering an area of approximately 1.6 million acres, the Cline production looks promising, though the 80 to 100 horizontal wells drilled to date are too few to draw any definite conclusions, said Alan M. Herbst, who heads New York-based energy and financial firm advisor Utilis Advisory Group LLC, in an interview with Rigzone.

"The information coming out on the Cline shale indicates up to 30 billion barrels of recoverable oil, which is substantially larger than other large plays," said Dr. M Ray Perryman, head of the Texas-based economic and financial analysis firm The Perryman Group.

The latest estimates seen for the Bakken top out at 11 (though they were recently doubled and could go higher). Eagle Ford top-end figures for recoverable oil are somewhere around 10 billion.

As more wells are drilled, we will get better information on the Cline shale, and if the pattern in other plays holds true, the total recoverable may well rise significantly, Perryman added.

"If we look at models of other Texas shale plays and extrapolate data based on their size and resources, the impact from the Cline shale could generate more than $30 billion annually in total economic impact across an 11-county region once it begins in full exploration phase," Chris Faulkner, CEO of Breightling Oil & Gas, told Rigzone.  "Additionally, we think the Cline will support over 50,000 jobs during the exploration phase, which could last upwards of 20 years."

The Cline shale is approximately 200 to 550 feet thick with total organic content of between 2 and 8 percent and a porosity of five to 12 percent, has produced light sweet crude with an American Petroleum Institute gravity of 38 to 42 degrees, similar to the Eagle Ford.  These factors make the Cline shale "an excellent candidate" for horizontal work and hydraulic fracturing.

"I really like the Cline better than the Wolfcamp because of two factors that really set it apart: its pressure and thermal maturity," Faulkner commented.

The pressure gradient is around .55 to .65 pounds per square inch per feet with an Ro value of .85 to 1.1 percent.

"Along with natural gas liquids, this allows for a nice, light crude that rivals the Eagle Ford. Our estimated ultimate recovery (EUR) type curves for the Cline shale is roughly at 420,000 barrels of oil equivalent (boe) per well, so the economics work all day long," Faulkner added.

Initial Cline production results for a number of relatively large wells – 400 to 800 barrels of oil per day with 60 to 75 percent oil production, have been reported by companies that include Apache Corp., Devon Energy Corp., Callon Petroleum Corp. and Gulfport Energy Corp., Herbst noted. Wells are costing about $9 million to drill and have an estimated ultimate recovery rate of between 500 and 700 boe with 25 frac stages.

The fact that the play is located in Texas, which has a great business environment with a low tax structure and a high rate of job creation, also has created a "great kick-starting environment" for the Cline.

"Because it's in Texas, there's no chance that [hydraulic fracturing regulation] could hinder our ability to get at the Cline," Faulkner commented.

"The productive capacity of such wells was declining, but new methods of recovery have opened up new plays as well as new zones. Fracking and horizontal drilling have led to regeneration of areas where oil has been produced for many years as well as an expansion into new fields," Perryman told Rigzone in an interview.

Cline exploration and production activity is spreading, but hot spots right now are Fisher and Nolan counties to the east and Irion and Tom Green counties to the south, notes Perryman. 

The development of new recovery methods and high oil prices have allowed operators recently to begin focusing on the Cline shale, Perryman commented.

"Without horizontal capabilities and fracking, shale plays were not feasible to produce. The Cline is still in the early stages, and activity is likely to pick up substantially over time." 

The Cline shale is certainly bringing new jobs to a large segment of West Texas, Perryman noted. Odessa and Midland were experiencing strong activity even before the Cline took off, and now we are seeing the Cline pull the focus into other areas such as Snyder, Sweetwater, Abilene, and San Angelo.

"The areas that provide the needed services, ranging from those specific to oil and gas to those that are geared to taking care of workers, will see the most benefit," said Perryman, adding, "You can look at the employment numbers for towns like San Angelo, and see significant gains in the leisure and hospitality sector, for example."

Clearly, this activity is also generating tax revenue: retail sales tax, hotel/motel tax, and others. It’s also bumping up property values in these cities as the housing market strengthens.  It is too early at this point to provide a comprehensive economic assessment, as the pace of development will depend on myriad factors (many of them global in nature). As a result of Cline activity, Perryman is seeing oil and gas companies opening new offices open in some cases, such as in San Angelo and Abilene.

Faulkner doesn't see a lot of challenges facing the industry in fully realizing the Cline shale's potential. 

"We are in a hotbed area with great infrastructure from legacy conventional plays, we have great access to a talent pool for workers and equipment is already in the area," Faulkner commented.

The only roadblock Faulkner sees is the allocation of drilling rigs due to the volume of major plays in this region that have already emerged.

"I think it's the same set of challenges we see in all new emerging plays: road maintenance, living quarters for the swell in population and environmental safety concerns from the public," Faulkner noted. "All of these we have overcome in the past and will be able to handle in the Cline."

Perryman pointed out that the Permian Basin has been one of the most important oil-producing regions in the United States for so long that the infrastructure is in place to deal with the industry from top to bottom. This situation is very different from shale in a place without the necessary network of oilfield service companies, pipe suppliers, trained workforce, and so on. 

However, Herbst sees the region requiring a build out of pipeline and infrastructure to bring oil to regional refineries, adding that exploration and production firms will be required to continue investing to prove up their results.

"In Texas, as you know, we’ve been around the block with the cyclical energy sector," Perryman noted in regards to how operators, local and state government agencies, economic developers and local residents are addressing the challenges of Cline shale development. "Communities are smarter about how they deal with the challenges, working together and trying to adequately protect quality of life while taking advantage of the potential economic gains."

Some residents are thrilled with the uptick in activity, but others see nothing but disadvantages such as more traffic and crowding, higher prices, and a dwindling labor pool. 

"There are always challenges with sudden growth, but recent experience in the western part of the Basin will be helpful," Perryman noted.

The Cline Shale Alliance, which was launched in April of this year, is a good idea for addressing Cline shale development issues, Perryman noted, as the economic growth on the scale that appears to be likely for the Cline brings about significant challenges.

"The more community and business leaders can plan and cooperate on a regional scale, the more the benefits can be maximized while the problems are minimized. The Alliance is pulling in a lot of key members, and while there is room for other organizations, it is positioned to take a lead role." 

Training can become an issue, with potential instructors in key areas (such as truck driving) taking better paying jobs actually driving trucks for oil companies.

"However, the long history of oil and gas in the Permian Basin also helps [the Cline] in this regard," Perryman noted.


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