American Oil and Gas Reporter - January 2012 - 50

Oil & Gas Shales
But as remarkable as the shale gas and tight oil story has
been to date, the industry is still at a relatively early stage of
developing resource plays, and operators continue to explore
unconventional formations across the country to test their economic viability. What key lessons has the industry learned in
evolving the science and technology behind resource plays,
what can be done to further optimize economics and improve
recoveries, what are the next big plays for both large and small
independent operators, and how is the market responding to
capitalize on the influx of new supplies?
To find out, AOGR presented a series of questions to Mike
Daugherty, chief operating officer at Murchison Oil & Gas;
Brad Fisher, vice president and chief operating officer at Carrizo Oil & Gas Inc.; Stephen A. Holditch, department head and
Samuel Roberts Noble Chair in the Harold Vance department
of petroleum engineering at Texas A&M University; and Steven
Farris, chairman of America's Natural Gas Alliance and president and chief executive officer of Apache Corp. Questions are
in italics, followed by each participant's responses.

MIKE DAUGHERTY, MURCHISON OIL & GAS

Permian Basin Boom
The Permian Basin is experiencing an historic resurgence,
Q:driven
by new resource plays and advanced technology
that is reversing a 40-year decline in oil production. In fact, oil
output is on the rise again, and is forecast to return to the peak
rates of the early 1970s. It is the basin that keeps on giving! As
a long-time Permian operator, what lessons about the basin's
productive capacity has your company learned? What have been
the biggest surprises in regard to the geology? How do you
summarize the region's outlook? Will the Permian continue to
surprise?
As recently as 10 years ago, the Permian Basin basically
was deemed to be "over the hill." Nothing could have been further from the truth, but most of us-save a few visionaries-acquiesced to that characterization . . . at that time.
We have adapted advances in drilling and completions technology to the Permian's conventional dolomites and tight sands
with tremendous success. As a long-time Permian operator, we
have mountains of data on wells collected over many years. We
have re-evaluated our data in relation to applying current and
developing technology. As a result, we have seen significant
increases in initial production rates and ultimate recoverable
reserves.
The basin was transformed when horizontal or stacked reservoirs in vertical wells were completed using multiple-stage
fractures to produce known reservoirs. The Spraberry became
the Wolfberry and the Bone Spring became the Wolfbone by
combining and comingling thick vertical sections of tight reservoirs. Likewise, horizontal wells in the Delaware, Yeso, Bone
Spring and Abo/Wolfcamp reservoirs have resulted in low-risk
economic producers.
50 THE AMERICAN OIL & GAS REPORTER

The lesson to be learned is that multiple-pay basins have an
untold amount of potential. Developing unconventional or shale
potential in the Permian likely has only begun. There is nothing new about the geological interpretation of the shales and
their presence. A new understanding of the petrophysical properties of these resources and applying improved completion
techniques have led to a treasure trove of future development.
Permian Basin appears to be endowed with vast tight
Q:oilThedeposits
that could rival or even exceed the conventional
recoverable resource base. What does the emergence of unconventional reservoirs mean to Murchison Oil & Gas and other
independents whose operations are focused exclusively on the
Permian Basin? How are these plays "changing the game" in
terms of your business strategy, long-range growth targets and
skill sets? In what ways might unconventional resource plays
impact your company's future?
We have acquired and developed leases over the past 20 years,
and have built a substantial acreage base. We pursued conventional reservoirs in the Permian Basin, which are generally longlived producers. Fortunately, these wells held 320-640 acres
each, which allowed us to amass an enviable acreage position.
Many of these Morrow and Atoka gas wells hold acreage
with Wolfcamp, Bone Spring and Avalon Shale potential, plus
other known conventional reservoirs. Our acreage has been inventoried and evaluated with open-hole logs, mud logs, and in
some cases, cores.
Technology has led to the resurgence of the oil and gas industry in the Permian Basin. Our challenge is to operate in an
environment of major advances in technology and increasing
environmental consciousness. We are beginning to realize
tremendous value from adding individuals to our organization
with experience, not only in the Permian, but across other shale
and unconventional resource plays in the United States. Focusing on innovation has become the key component of our business strategy.
One thing we have not experienced in a long time is a dramatic increase in activity, which makes us concerned about the
availability of services and equipment. The most interesting aspect of this boom is that we are seeing an increase in domestic
production. We have experienced shut-in oil wells because of a
lack of take-away capacity. A shut-in gas well is one thing, but
a shut-in oil well in the middle of the Permian Basin is a first!
Low natural gas prices certainly are a concern for all of us,
big and small. The big question with natural gas selling for $3$4 an MMBtu for the near term, is whether the market will be
willing to develop uses for that source of energy. As an industry, we tend to think natural gas should sell for $15 an MMBtu
on an equivalent energy basis with oil at $95 a barrel, which is
closer to what natural gas sells for internationally.
Perhaps we should be emphasizing to our fellow Americans
that natural gas is selling for $0.60 a gallon, compared with
gasoline. From an industry standpoint, as well as economic development in this country, it would seem like a tremendous economic advantage for the United States to develop a significant
amount of low-cost, clean energy.

American Oil and Gas Reporter - January 2012

Table of Contents for the Digital Edition of American Oil and Gas Reporter - January 2012