Tuscaloosa Marine Shale play hit hard by falling oil prices

High-cost shale plays are first on the chopping block for oil companies looking to trim budgets amid lower oil prices.

Beginning in late 2014, the Tuscaloosa Marine Shale (TMS) play has taken one of the biggest hits from the fall in oil prices as operators active in the Louisiana/Mississippi play have slashed budgets in a part of the U.S. where profitability drops at oil prices below $80/bbl.

A steady flow of TMS wells have been brought online since the play's emergence in 2011, with companies completing roughly 50 horizontal oil wells. Most of the completed wells reached total depths of around 18,500 ft, or 12,000 ft true vertical depth. ft. But despite recent successes, completions this year will grind to a halt as companies - at least temporarily - decide not to fund new drilling in the play.

Budget cuts

Encana Oil & Gas has been the most active company in the play, completing 19 horizontal wells. This year will be a different story with just three net wells planned by the company. Of Encana's 2015 budget of around $2.8 billion, just $50 million-$70 million has been earmarked for TMS drilling.

Other companies have taken a more drastic approach. Comstock Resources has suspended activities in the TMS with the company recently releasing a rig in the Mississippi portion of the play. According to the company, drilling will not resume until oil prices improve. Comstock has also decided to stop development of its Eagle Ford Shale acreage in light of weakoil prices.

Goodrich Petroleum, which exclusively operates in the TMS, recently made deeper cuts to its 2015 budget, with annual spending now expected to be $90 million-$110 million. In December, Goodrich announced a 2015 budget of $150 million-$200 million. The company's spending in 2014 totaled $325 million!As of result of its drilling program in Louisiana and Mississippi, Goodrich has successfully completed 19 wells in the play.

Along the far eastern edge of the shale play, Goodrich Petroleum recently started drilling the 1 Painter "5H" in Louisiana's Washington Parish. This horizontal well is just the eleventh test drilled in the parish over the past decade. Proposed total depth at the 1 Painter "5H" is 20,000 ft (13,000 ft tvd). The nearest TMS activity is five miles to the west.

Tuscaloosa Marine Shale wells along Louisiana/Mississippi border

Sanchez Oil & Gas, which recently drilled one of the most successful wells in the play to date, has also made budget cuts in response to the deteriorating price environment. The company intends to slow TMS drilling this year following a one-rig program in the play during the fourth quarter of 2014. Companywide spending in 2015 is expected to total $600 million-$650 million, which is sharply lower than the initial plan of $1.15 billion announced prior to oil prices declining in the second half of 2014.

Strong completions

Although Sanchez is cutting back TMS plans this year, it ended 2014 on a high note completing what the company says is one of the best TMS wells drilled to date on a barrel-per-lateral-foot basis. The 1H Saint Davis Unit in Mississippi's Amite County was tested and flowed 1,021 bbls of crude per day through perforations at 12,141-17,822 ft. The well was drilled with an approximate 5600-ft lateral and was fractured with 25 stages.

Sanchez said that the success of the horizontal well is in part due to the placement of the lateral above the TMS "rubble zone," which due to sand and silt deposition, provides for flatter decline rates relative to the lower section targeted in deeper TMS wells.

The TMS play will continue to be economically challenged by low oil prices, but better completions targeted to specific zones within the shale and the resulting improved productivity can reduce breakeven costs and keep active the best parts of the play. We will likely see very selective investment in this play until 1) oil prices increase significantly and/or 2) costs begin to soften.

By Jeff Gosmano, Senior Editor, IHS

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.