On the western edge of the Fort Worth Basin in Texas, the Marble Falls play—an unconventional play with upside—delivers impressive economics, with average rates of return around 100%. The formation is shallow, about 5,000 to 6,000 feet down, and thick, 150 to 450 feet, making the primary pay zone inexpensive to drill. Its balanced production stream—about one-third oil, one-third gas, one-third gas liquids, plus a lot of produced water to boot—seems to hold up well in a weakening commodity environment.

The region has known conventional production for decades; now operators are eager to test unconventional means. The only question, it seems, is whether vertical or horizontal drilling will deliver more prolific returns.

Three companies presently dominate the known core of the play: Newark E&P Operating, Brigadier Oil & Gas and Atlas Resource Partners, the only public company with an active program. Each holds some 90,000 acres in the play, mostly in Jack and Palo Pinto counties.

“We saw this Marble Falls oil play developing right in our backyard and decided to pursue it,” said Craig Adams, president and CEO of Newark, based in Fort Worth. Newark is backed by private-equity firms CCMP Capital Advisors and Quantum Energy Partners.

The Marble Falls might not have the sexy numbers of the Bakken or Eagle Ford, where reserves are much larger, said Newark E&P Operating CEO Craig Adams, but "we would stack this play up against anybody's play on sheer economics."

The company also holds a solid position in the Barnett Shale dry gas play, and followed the liquids-rich Barnett zone west into Jack County, where it drilled a dozen test wells. That’s where it encountered local operators attempting early completions in the Marble Falls.

“It’s more of an oil-rich target,” Adams observed.

While not a shale, the Marble Falls siltstone sits above the Barnett Shale, the more mature source rock, and below the Bend Conglomerates. Adams, a geologist, characterizes the reservoir as a low-porosity, low-permeability rock, but consisting of an interconnected network of naturally occurring fractures “on the millimeter to meter scale.

“You can’t think in terms of Austin Chalk-type fractures; these are on a much smaller scale and ubiquitous through the reservoir. It sets up almost like a conventional porosity and permeability system, so you don’t see steep declines [in production] like you do in other fractured plays. We’re actually seeing a flatter decline than in the Barnett.”

Frank Burke, CEO of Dallas-based Brigadier, a portfolio company of EnCap Investments, likes to invest in plays that combine strong single-well economics with zero dry-hole risk, and the Marble Falls meets those criteria. It is the company’s sole asset.

“You’re not going to drill within the confines of the play and just whiff,” he said. Also a geologist, Burke said the rock has good hydrocarbon storage with an average porosity of 4% to 7%, and the natural fracturing enhances deliverability. “Add to that the fact it’s oily with a lot of gas and NGLs, and it’s shallow, then it starts to be something that’s repeatable, highly economic and low risk. It might not be a resource play by some people’s definition, but it sure acts like one on paper,” he said.

"I don't know where else in the country you can drill 5,500-foot wells for $750,000 and average greater than 90% rate of return with almost no risk. It just doesn't exist," said Brigadier Oil & Gas CEO Frank Burke.

Trumping Barnett

Newark prefers a vertical Marble Falls drilling program, where it operates in a concentrated north-to-south position through central Jack County. “We drill these in four to five days,” Adams said, with three rigs running. “It’s an easy environment to work in.” A typical Newark well targets 350 feet of the Marble Falls zone, with the upper part of the Barnett added from below, and possibly a lower Bend Conglomerate sitting above. “If that’s present, we’ll take that as well.”

Industry activity targeting the Marble Falls is focused in Jack and Palo Pinto counties, Texas--for now.

Other potential zones, such as the Strawn, Caddo and Ellenburger, often get classified as PDNP (proved developed nonproducing) due to regulatory circumstances. “We look at the whole pay section, but essentially just complete the Marble Falls and Barnett together. Anything else requires comingling.”

Average 30-day IPs produce about 50 barrels of oil per day (bbl/d), and 500 thousand cubic feet (Mcf) of gas. EURs are just under 200,000 boe. In the past two years, Newark has drilled 150 or so wells in the play. Each costs from $800,000 to just over $1 million, depending on depth and number of fracturing stages. He estimates returns in the present commodity environment at just under 100%.

Yet some wells exceed those returns by considerable margins, he noted. “Our Lane Green #2, which has been online for over a year now, had its peak production in the 200 barrels and 1,900 Mcf per day range and is estimated to make 235,000 barrels of oil and 2.1 Bcf of gas.”

And so far, “the economics of the vertical wells have just been better than the horizontals,” he said. About 20 to 30 horizontal wells have been drilled in the play thus far by industry, with one and a half times the reserves of a vertical, but at three times the cost.

“The industry has not yet cracked the code on the horizontal,” he said. “There’s an opportunity for this play, but so far the vertical results are superior.”

That goes for the liquids-rich Barnett opportunity as well, he believes, the play the company originally hound-dogged into Jack County.

“The liquids-rich Barnett doesn’t make much oil; the rate of return is maybe 30% or lower. The Marble Falls has a significant oil component with liquids-rich gas that generates three times the return [from a vertical well] you would get from a horizontal Barnett well. The Marble Falls is superior.”

Newark has no plans to drill horizontally.

Fast and prosperous

To date, Brigadier has followed a similar path of vertical drilling, the bulk of it in 2014 with 50 wells. It acquired others, and now has some 200 operated wells in its portfolio. This includes a 40,000-acre purchase from Veritas in September that nearly doubled its size. Brigadier’s position is surrounded by Newark acreage, with a concentrated position in central Jack County and extending into north-central Palo Pinto.

Average well results are comparable, 40 to 50 bbl of oil plus 400 to 600 Mcf/d, with Brigadier reporting a blend of 20% oil, 35% gas liquids and 45% rich gas. “We’re drilling these wells in five to seven days spud to spud, and fracking them 10 days later,” said Burke.

He offers up the Halsell Ranch B-9 vertical well as the model producer. It is flowing 1 MMcf/d flat gas after eight months on a 32/64-in choke, with a moderate decline in water and oil cuts. The well paid out in 140 days. The company ballparks EURs at 29,000 bbl of oil and 1.6 Bcf gas, but admitted it was just a guess—a conservatively light guess. “There are 1,000% rate of return wells in this field,” Burke said, referencing the Halsell B-9. “There’s upside in those numbers. It’s hard to forecast what that well is going to do—it’s flat.”

Where it makes sense, he said, Brigadier will add the Caddo, Strawn, Bend Conglomerate and Barnett Shale to the vertical completion stack. Thus far, the Bend group has been the best up-hole zone.

“We’re five-for-five on completions in the conglomerate out of the gate, with dozens of high-graded opportunities identified, and those can add as much as a Bcf [EUR] if you find a good one.”

The Barnett Shale underlies Brigadier’s position across much of the acreage, and the company will add a hydraulic fracture stage there in its vertical wells when it doesn’t cross-communicate with the Ellenberger below. Following a single-stage Barnett test, Burke estimates the zone adds roughly 200 Mcf of gas and 2,000 bbl of oil, “which itself would likely be an economic new drill if you have the infrastructure in place and low fracturing costs,” he said.

Within the Fort Worth Basin, “George Mitchell [the grandfather of the Barnett Shale] found a lot of stuff, but he didn’t find everything,” Burke said. “We’re reaping the benefits of going back into a stacked pay area and adding these shallow uphole zones.”

Brigadier currently operates some 200 wells, including acquisitions, and has drilled 50 this year.

The Marble Falls sits above the Barnett Shale and below the Bend Conglomerates, with other productive zones sandwiching those.

Another form of liquids-rich

Water is a challenge. Not to the extent of the Mississippi Lime play in Oklahoma, say, but voluminous nonetheless. Water can make up 80% or more of the production stream. “This is essentially a dewatering play,” said Burke.

Still, what is a barrier to others entering the play is opportunity to Newark and Brigadier.

“When we see big water rates, we like that,” said Newark executive vice president and COO Paul Teske. “When we see water, we know we connected to the reservoir efficiently, and the oil cuts are pretty consistent.”

“The higher the total fluid rates, the better the well,” Adams agreed. “A well that’s making 1,000 barrels of water a day could potentially have 200 barrels of oil. If you chop the water number in half, the hydrocarbons go to half, so total fluid production is important.”

So is a system for handling fluids. Presently, most water is pumped into saltwater disposal (SWD) wells, either in existing infrastructure in place from historic producers or in new SWDs like the seven Newark has drilled. Newark disposes of 80% of its produced water in its own SWDs at a cost of about 15 cents/bbl with the balance trucked at $1.40/bbl. Adams said the oil cut averages 15% to 20% of the fluid stream now, up from 5% when Newark began drilling.

Due to the volume of water, Brigadier almost immediately puts wells on gas lift, as the initial flow would require a very large and costly pumping unit. Gas lift, instead, “affords us the opportunity to move more fluid more efficiently,” Burke said.

However, when the formation dewaters sufficiently, a pumping unit is installed, which better pulls down bottomhole pressure. At that point, “we see these wells bounce back up to original IPs, maybe even better, and a lot of times show a flatter decline.”

Teske added that Newark lifts its wells in a similar manner. “We have three phases of lift: 10% to 15% of our wells come on flowing naturally. If they don’t flow initially, we put them on gas lift and then switch to a pumping unit later in the well’s life.”

Looking laterally

Burke believes the play is ultimately destined to go horizontal. Thus far Brigadier has been a vertical player, but recently drilled three horizontal Marble Falls wells, with the first still completing at press time, a 2,100-footer with six stages. Drilling and completion costs are expected to be $1.5 million to $1.7 million, with Brigadier’s first horizontal coming in around $1.7 million.

“This is a reservoir in which production is related to fracturing, and horizontals are effective as fracture finders. You can intersect more of those fracturing systems going horizontal than vertical.”

After all, he said, “The name of the game is to prove that we can drill and complete these for twice the cost at something north of twice the return, right?” Results remain to be seen, but the company is careful to drill the laterals perpendicular to the fracture geometry, in the lower third of the Marble Falls, and in a toe-up configuration.

Via acquisition, Brigadier operates a handful of horizontal producers with returns exceeding 200%, and Burke believes he can catch lightening with 150 to 200 identified horizontal locations. “We want to start cranking out more horizontals,” he said, and presently has 25 “teed up.”

Yet the seemingly short lateral is very purposeful, as adding lateral length exacerbates the water problem, Burke said. “If you drill out 4,000 feet and intersect twice as many fractures, which is where the water flows, then you may have a hard time unloading those fractures without having huge pumps.”

“People have a bad habit of drilling the longest lateral possible because engineering math always states that more reservoir per incremental drilling dollar is better,” added Kurt Vanderyt, Brigadier vice president of exploration. “But that’s not true in plays that move a lot of water. You’ve got to deal with the water; it’s one of the biggest challenges in the play.

“We’re trying to keep the length of the laterals to 2,000 to 2,500 feet, which we feel appropriately keeps costs down while maximizing the benefit of horizontals versus verticals.”

Noting longer wellbores equal more water production, Kurt Vanderyt, Brigadier vice president of exploration, said, "We're trying to keep the length of the laterals to 2,000 to 2,500 feet, which we feel approximately keeps costs down while maximizing the benefit of horizontal versus verticals."

Little risk, big reward

Both companies admit the Marble Falls is prospective across a larger area. After all, the Texas Railroad Commission, the oil and gas regulatory body, counts Marble Falls production from some 2,300 wells across 10 counties. But it also notes the economics depend on the fractured rock quality, which may not be ubiquitous, and access to existing infrastructure in the immediate core area, which works to keep costs down.

The play is somewhat buffered by pressure on commodity prices, suggested Brigadier CFO Daniel Kimes. “The single-well economics are extremely robust, and the commodity mix is very well diversified, which is probably the best attribute of the play. Even if one commodity trades off, like oil has recently, we are still able to generate 75% rates of return across our drilling program.

“Our analysis shows commodities—oil, gas, and NGLs—could trade off 40% across the board from where they are now and our drilling program would still generate a 10% IRR; and that’s without assuming decreasing service costs.”

“We would stack this play up against anybody’s play. It doesn’t have the sexy numbers of the Bakken or Eagle Ford, where per-well reserves are much larger,” said Adams, “but for sheer economics, because of well costs and the friendly operating environment, we’re going to get mid-teen returns at $50 oil and $2.50 gas, which is pretty robust.”

Adams anticipates Newark drilling upward of 100 wells in 2015, similar to the current pace.

In 2015, Brigadier will run one rig drilling vertical wells and a second drilling both verticals and horizontals, and expects to drill about 100 wells. With production at 5,500 boe/d currently, the company hopes to achieve 10,000 boe/d by year-end 2015, and may add a third rig to push production toward 15,000 boe/d.

Said Burke, “I don’t know where else in the country you can drill 5,500-foot wells for $750,000 and average greater than 90% rate of return with almost no risk. It just doesn’t exist.”