Comstock Resources is dropping its drilling plans in the Tuscaloosa Marine shale (TMS) following the plunge in oil prices, in an early sign that producers are beginning to abandon a shale area considered one of the most expensive to work on in the US.
Comstock Resources joins Halcon Resources, which in November said it was moving its focus away from the Tuscaloosa shale, located in southern Mississippi and eastern Louisiana. The hammering in oil since June to five-year lows is prompted producers to pull out of expensive properties and focus operations only on areas that offer the highest return as cash flows get squeezed.
The announcements mark a turnaround for Tuscaloosa, which was emerging as an industry favorite a year ago as land costs in this untested area were a fraction of those in better-known properties such as the Eagle Ford in south Texas. In December last year, Comstock had acquired 51,000 acres for $51.5mn and had said it was open to more TMS deals. It estimated TMS land costs at about $1,000/acre, compared to $25,000-$35,000/acre in the Eagle Ford.
The quality of TMS crude was another draw. Output from the area appeared to heavily skew to 40-45° API, fetching Light Louisiana Sweet (LLS) pricing, similar to European market Brent, which enjoyed hefty premiums to US benchmark WTI.
TMS drilling costs are high primarily because of the shale's depth. At 11,000-14,000ft, the TMS' target oil window depth is greater than the Eagle Ford's 5,000-10,000ft, requiring the use of longer laterals. That means the per well drilling cost in the TMS, of about $16mn, can be as much as double that of Eagle Ford.
Comstock has released its rig in the Tuscaloosa area and will postpone drilling activity there until prices improve. Comstock currently has four rigs in operation on its Eagle Ford shale properties, of which it will release two in early 2015 and move the other two to North Louisiana to start up drilling on its Haynesville shale gas property. Halcon is banking on the Willinston and El Halcon assets to drive the targeted growth of about 15pc to 20pc in 2015.
mg/tdf
Send comments to feedback@argusmedia.com
Request more information about Argus' energy and commodity news, data and analysis services.
Copyright © 2014 Argus Media Ltd - www.argusmedia.com - All rights reserved.
