Posts Tagged ‘pearsall shale forecast’

Pearsall Shale, Natural Gas Giant Below The Eagle Ford?

What is the Pearsall Shale and Is It The Next Eagle Ford?

The Pearsall shale is a Cretaceous age rock formation (65-145 million years old), known to be productive  primarily of dry natural gas. (Like the Eagle Ford Shale, the Pearsall Shale appears that it will have a “wet gas and condensate” zone as well.)  In South Texas, as part of the Rio Grande embayment, it is located  several thousand feet deeper than the Eagle Ford shale. In the Maverick basin, the Pearsall Formation defines a regionally occurring shoal-water limestone complex, and open-water shelf system with a maximum thickness of 500-600 feet.

There are Pearsall shale gas wells dating back to the 1960′s, however horizontal drilling and hydraulic fracturing technologies developed in the past decade have made this deep formation more attractive to oil and gas exploration companies.   So far, Encana, EOG, Chesapeake, Anadarko and Newfield Exploration have recently drilled exploratory Pearsall shale wells in the Maverick Basin and along the core Eagle Ford Shale area. Several of these wells are now producing dry gas  but companies are tight lipped about results for now . (These wells are in Dimmit, LaSalle, McMullen, Maverick and Zavala counties.)  South and Eastward, where the Pearsall shale lies at an even greater depth, there has been little interest in wide scale drilling programs so far.

Below is an isopatch map of the Pearsall shale formation showing thickness, from a paper published by Loucks and Bebout for the Bureau of Economic Geology at the University Of Texas, sometime in the 1970′s. Maps of the Pearsall shale are so far very hard to find.

isopatch map of pearsall shale formation

In the Cretaceous age geologic column of South Texas seen below, the Pearsall shale lies beneath the Glen Rose formation, or the Suart City Reef Trend, depending on where it is located in South Texas.

eagle ford shale, pearsall shale geology column

Why The Sleeping Giant, The Pearsall Shale, Is Still On The Back Burner

Lack of interest in the Pearsall shale is primarily due to the fact that natural gas prices are depressed, and greater riches lie in the liquids – rich Eagle Ford shale, which is located thousands of of feet above the Pearsall shale. Pearsall shale wells are typically more expensive and more difficult to drill than Eagle Ford shale wells, due to their great depth and the potential for encountering depleted zones such as the Edwards.   A report in Oil and Gas Journal in 2009 hinted that the Pearsall shale could be the “next Barnett Shale”. It could very well be,  someday, but not with today’s low natural gas prices.   As of  Jan, 23, 2012, natural gas was selling at $2.45 per million BTU. This price for  natural gas is about $10 per MM/Btu cheaper that it was  in 2006. See the natural gas price – history chart below.

historic natural gas price chart Historic Natural Gas Prices. $ per MM/Btu

The fact is, natural gas is now  seen as almost a “waste or by – product”, produced in great quantities from liquids rich wells in the Eagle Ford shale and other areas. In the Eagle Ford shale, it’s  the liquids, such as oil and condensate, that  companies are after.  Natural gas must still be produced from these wells and either sold or flared .

The Case For Natural Gas Price Optimism

Will such a valuable natural resource as natural gas continue to be worth almost nothing? Companies such as Chesapeake Energy are guessing that it will not.  Already,  dozens of U.S. and foreign power plants have been converted from coal to cleaner burning natural gas, and more new natural gas burning power plants are coming online each year. Few, if any new coal fired plants have been built in the U.S.,  due to both the low cost of natural gas and strict EPA regulations. Add to this a growing demand for LNG (liquified natural gas) on the world market, plus the conversion of thousands of cars and trucks each year to run on natural gas, and the future looks good for gas.

Here is an excerpt from a recent U.S. News article:  “Most of the people I know in the electric power industry are building natural gas” plants, said Jay Apt, a professor of technology at Carnegie Mellon University in Pittsburgh. That’s because of low prices over the last few years and the relatively low cost of building such plants, compared with coal-fired or nuclear.  Mr. Apt foresees higher natural gas prices as a result of this widespread conversion. “The surest route to $6 or $8 gas is for everybody to plan on $4 gas,” .

Chesapeake Energy for one, is  bullish on natural gas for these reasons, and because of  the fact that very few new gas wells are being drilled.  (Those wells that are being drilled  for natural gas are being done so only to hold leases that are about to expire.) Wells that were drilled to hold leases are slowly beginning to fall off, and infill drilling in these fields is not expected anytime soon.

Here is what Chesapeake Energy had to say to shareholders in the 2010 annual report about the Pearsall shale in South Texas.  “This shale underlies most of our Eagle Ford acreage and is the second “sleeper” of our natural gas shale plays. We have two rigs dedicated to testing this formation, and our first few wells have significantly exceeded our expectations. This formation is found about 3,000–4,000 feet deeper than the Eagle Ford and so for the play to become competitive with our other natural gas shale plays, we will need natural gas prices to strengthen from where they are today. We believe this will likely occur in 2013 at the latest. We believe our 350,000 net acre Pearsall leasehold position could support the drilling of up to 3,000 additional net wells.”

This forecast from Chesapeake, made over a year ago, is probably a bit too optimistic in terms of when prices will rebound. Jack Barnes, global macro trends analyst for “Money Morning” forecasts that natural gas prices will remain low until the completion of LNG export facilities, expected to start coming online by 2015. These facilities will eventually export more than 17% of U.S. natural gas production.  Barnes predicts that in some fields we may even see natural gas selling for $0.00, or negative $ by this summer, after takeaway costs.

What To Expect Of The Pearsall Shale In The Coming Years

In the short term, perhaps for the next two to five years, natural gas prices will most likely remain too low to justify drilling new Pearsall shale wells.  In time, natural gas prices should eventually begin to rise, due to both domestic and international demand, and overall gas supply falling due to the  maturing of wells in the Marcellus, Haynesville and other shales. As the price of natural gas rises, drilling will most likely begin in earnest in the Pearsall shale. The timing for a Pearsall shale drilling boom (as well as  interest in deeper Eagle Ford shale dry gas), could very well coincide with a surplus of rigs, frac equipment, etc., as the Eagle Ford shale liquids play matures.  In the meantime, having a depth exclusion clause in your lease may just be a good idea. This will enable you to renegotiate a new lease for the Pearsall shale when it becomes more valuable.

Pearsall Shale Gas To Be Used For Secondary Recovery In Eagle Ford?

Just one more thought about the Pearsall Shale. EOG Resources is already talking about using dry natural gas injection in the Eagle Ford shale, along with reduced well spacing, to force more liquids out of the formation. What better source of cheap dry gas than Pearsall shale wells on their own acreage?

Update: On June 22, 2012, Cabot Oil and Gas  entered into a joint venture with Japan’s Osaka Gas Company for an non-operated 35% working interest in 50,000 net acres. The deal is for all zones below the Buda limestone and includes acreage in Atascosa, Zavala, LaSalle and Frio counties in the Buckhorn and Powderhorn operating areas. Essentially this is a Pearsall Shale deal, and this transaction puts the value of that acreage at around $14,285. The news of this JV transaction set  boardrooms buzzing across the nation and has everyone taking a closer look at their Eagle Ford Shale lease contracts.

Article by Nolan Hart, 01/23/2012

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