HORIZONTAL WOLFCAMP - Approach Resources - …

1 HORIZONTALWOLFCAMPLong ignored even derided the oil-saturated WOLFCAMP shale inthe southern Midland Basin is rising to Indiana Jones silhouetted by the sunas excavators shovel sand into the air,seeking the treasured Lost Ark of theCovenant, Pioneer Natural Resources Co. sPaul McDonald stands atop a rare outcroppingin an otherwise flat West Texas expanse. A rigframes the rising sun behind him 100 milessouth of Midland in Upton County. Visible formiles, like a beacon on the plains, this horizon-tally drilling rig too is seeking long-buried trea-sure the WOLFCAMP shale. It has the potential to be the largest resourceplay in the , says McDonald, vice presi-dent of Pioneer s Permian asset team. The ge-ology is consistent over miles and miles ofexposure.

2 This play is going to be massive. The story of the Permian Basin spans nearlya century as one of the oldest and most prolifichydrocarbon-producing basins in the Butin a world in which oil is cash-flow king andgas is bust, the heretofore overlooked Wolf-camp oil shale in the southern Midland Basin isfast garnering now? Until recently, Permian operatorsbelieved the Midland Basin ended at the OzonaArch uplift in southern Upton and Reagancounties, and certainly before Crockett Countybelow. The WOLFCAMP formation, the sourcerock across the expanse of the Permian, haslong been believed to be nonexistent here, abald spot, so to speak, in geological while operators for decades have drilledARTICLE BYSTEVE TOONPHOTOGRAPHY BYTOM FOXLE xcerpted fromApril 2012 Copyright Hart EnergyPublishing LLP 1616 S.

3 Voss 1000 Houston, TX 77057(713) 260-6400into the deeper Canyon, Strawn and Ellen-burger gas formations, they simply bypassedlogging the middle intervals, believing themnonproductive. Some called the hard shale atrick zone. Data were was a small public Permian E&P Ap-proach Resources Inc. that revealed in a late-2010 analyst day report in New York that theMidland Basin extended further south intoCrockett County. The company came armedwith mud logs on more than 200 air-drilledwells with real-time shows that the Wolfcampcolumn was there, and thick. Very thick up to1,200 feet. We saw you could correlate this zone over avery large interval, and it didn t change, saysApproach president and chief executive RossCraft.

4 That was the beauty of it. It was a no-brainer at that point the southern MidlandBasin did extend down into Crockett County. That revelation, combined with still-freshtechnology to effectively tap tight oil shale,opened the curtain to a new horizon. In additionto Approach , EOG Resources Inc. and El PasoCorp. soon followed, leading the charge in ex-ploring the southern Midland Basin Wolfcampoil shale. Other operators now testing the playinclude ConocoPhillips, Pioneer, LaredoPetroleum Holdings Inc., BHP Billiton, ApacheCorp., Devon Energy Corp. and HighmountExploration & Production LLC, among neighborhood is mostly set with acreageheld by existing production or by recent lessorsat the University of Texas land sales.

5 UT is amajor mineral holder data on more than 60 wells to date, re-sults have not disappointed. Initial production(IP) rates often exceed 1,000 barrels of oilequivalent (BOE) per day with a 90% oil andliquids mix, very styling today. We re at thatinflection point whereby our understanding ofthe WOLFCAMP shale play will grow signifi-cantly, says Irene Haas, an analyst with Wun-derlich Securities. She follows both Approachand EOG in the Hunter Securities analyst Dan Morri-son, in a November research report, recognizedthe unfolding drama as well. We expect thehorizontal WOLFCAMP in the southern MidlandBasin to emerge as a major new unconventionaloil play in the , he expectationsTo hear operators talk about it, Wolfcampgeology in this part of the Midland Basin is justabout perfect for an oil-shale wish list: high intotal organic content; filled with silica andtherefore brittle; having good porosity and nat-ural fractures; and in the optimal thermal matu-rity window to produce oil.

6 It is the ideal package when it comes to fra-cability and productivity, says Tim Dove,president and chief operating officer for Pio-neer Natural Resources . Adds Haas, It has theright combination of key ingredients. To fan the excitement, positive well resultsare trending northward into the basin, openingspeculation as to the potential areal breadth ofthe play. Haas says current activity confirmseconomic results in Crockett, Irion, Reagan andUpton counties. Permitting data suggest resultsshould be forthcoming from Glasscock andSchleicher counties. Counties to watch: Ster-ling, Midland, Martin, Dawson, Howard andBorden. Assuming a 25-mile-wide fairway, the trendcould cover a 1,500-square-mile area, or almost1 million acres, she says.

7 However, we areconvinced the play might be much s no reason why it shouldn t work as yougo north in theory. Drilling results will needto validate this idea. Acreage values are trending northward aswell. At the high point, ConocoPhillips paidTop, leading thecharge into thesouthern MidlandBasin Wolfcampshale, ApproachResourcespresident andchief executiveRoss Craft says, We think we llbe here for a longtime. Above, We re at thatinflection pointwhereby ourunderstanding ofthe Wolfcampshale play will growsignificantly, says Irene Haas,an analyst withWunderlichSecurities. Overleaf, a viewof the southernMidland Basinfrom PioneerNaturalResources University 3-31#4H welltargeting theWolfcamp shalein Upton County,Texas.

8 Left,Fisher LeaseServices workersconstruct thefree-waterknockout for atank batterydownhill ofPatterson-UTIRig #208 drillingfor Pioneer nearRankin, $6,000 per acre in September 2011 viathe University of Texas lease sale, upping itsholdings to 70,000 acres in Crockett, Upton andReagan Hunter s Morrison dared to step outand suggest the HORIZONTAL WOLFCAMP couldrival the mighty Bakken oil-shale play in NorthDakota. The most recent well results in theplay have indicated a potential step functionshift in well performance and suggest the playmay not only be economic, but wildly so. With potential for high production rates of1,500 BOE per day, Back-of the-envelopemath suggests Bakken-esque potential for theplay.

9 Global Hunter estimates the play s potentialrecoverable Resources range from to BOE, and probably working higherover time. He notes the USGS estimate forBakken recoverable Resources of up to bil-lion BOE. Indeed, things may be bigger in Texas. How to slice itApproach Resource s Ross Craft is a self-de-scribed tight-sands gas man, having built andsold two such Permian-focused companies be-fore starting Approach in 2004. So when hefound himself with an unanticipated 1,200-footcolumn of oil-saturated WOLFCAMP shale belowhis holdings, he knew he needed help. Hecalled on Qingming , who holds a doctorate in geology, hadbeen global exploration manager for PioneerNatural Resources , and most recently the leadfor Pioneer s Eagle Ford shale technical understood shales from around the tapped him in 2009 and handed him thesuite of logs to develop an evaluation plan forthe company s 145,000 net acres in CrockettCounty.

10 One thing about shale plays, especially oilyshale plays, is everything has to line up per-fectly, Craft says. We had no idea if this wasgoing to work. Adding to the complexity of the subsurfacemystery, the Clearfork shelf sits on top of theWolfcamp here, and the logs looked just as fa-vorable as the WOLFCAMP shows. When we didthe analysis, we realized we have more than1,000 feet of WOLFCAMP pay, and another 1,500feet of Clearfork pay, says Yang. That s2,500 feet of column. Other proven shale plays typically fall be-tween 150 and 300 feet of thickness, and thewhole zone can be effectively stimulated froma single lateral wellbore. Not this column. Theproblem of too much pay produced a dilemma: How are we going to develop this?