There’s a certain horizontal beauty to the vast reaches of the Texas Panhandle and western Oklahoma. These are wide-open spaces, all possibility and potential. And belowground, there is another horizontal beauty at work—one that is improving drilling results.

The target? The Cleveland sand formation, a beneficiary of the growing trend of horizontal drilling and development. According to Ross Smith Energy Group, Calgary, of the 3,000-plus wells drilled in the Texas Panhandle since 2003, more than 700 have been horizontal.

“Horizontal drilling has helped flatten out and even turn around declining oil production in many areas,” says Dan Boyd, petroleum geologist with the Oklahoma Geological Survey in Norman.

Favorable Geology

Production in the western Anadarko Basin’s Upper Pennsylvanian Cleveland formation was discovered in the mid-1950s by explorers looking for deeper Morrow reservoirs. The Cleveland, a clean, blocky, tight-gas sand, was deposited in a deltaic environment. Net-pay thickness typically ranges between six and 55 feet, at depths from 5,500 to 12,000 feet. Calculated water saturations are high due to interbeds of thin shale streaks, although Cleveland wells do not usually produce water.

This is indeed a tight reservoir: permeabilities range between 0.03 and 1.1 millidarcies, and porosities are between 4% and 14%.

According to an April 2008 study published in the Journal of Petroleum Technology, 125 vertical Cleveland wells drilled since 1995 have posted an average per-well estimated ultimate recovery (EUR) of 700 million cubic feet of gas. Initial 60-day average production rates were 400,000 cubic feet per day.

Operators first developed the Cleveland using vertical wells on 640-acre spacing, eventually reducing that to 160 acres per well in many areas. In the vertical-drilling days, the Cleveland play was estimated to hold estimated ultimate recoverable reserves of 703 billion to 1 trillion cubic feet of gas, and the commercial portion of the formation was believed to be limited to Ochiltree and Lipscomb counties, in the Texas Panhandle.

But recent exploration and horizontal drilling have dramatically expanded and elevated the Cleveland’s potential. It now reaches southwest to Hemphill County, Texas, and east to Ellis, Custer and Dewey counties, Oklahoma.

And, given sturdy crude oil prices, the oil-prone and liquids-rich areas of the Cleveland are attracting keen interest.

Highly Economic

Great strides have been made in horizontal drilling and completion since the first horizontal Cleveland well was drilled in 1997. These innovations have propelled the play’s success. Modeling with 3-D seismic has helped operators select the best well locations. Drilling and completion strategies now include horizontal infill wells. The adoption of openhole packer systems and multistage fracture treatments has also yielded significant benefits.

One operator plying the Cleveland, Houston independent EOG Resources Inc., has focused on the oil-prone areas. During the company’s 2010 analyst day presentation, Gary Thomas, senior executive vice president, said the play provided an excellent example of how the company develops resource plays.

EOG initially identified the play from old vertical well production. It kicked off horizontal development after determining attractive volumes of in-place reserves, with promising economics, remained.
The company holds 60,000 net acres prospective for the Cleveland, mainly in Ochiltree and Lipscomb counties, Texas. It calculates in-place resources per section at 7.9 million barrels of oil equivalent (BOE).

To date, EOG has developed 130 billion cubic feet of gas and 8.5 million barrels of oil in the Cleveland, which it classifies as a hybrid horizontal oil play. Using actual and strip prices, EOG has achieved a 39% after-tax rate of return on its Cleveland drilling since its program’s inception. Finding costs are an attractive $15 per BOE.

“2009 was our best year yet,” said Thomas during the presentation. “2009 wells averaged over 500 barrels and 1.5 million cubic feet of gas per day.”

EOG has steadily enhanced the play’s numbers. In the first part of 2008, it looked for per-well recoveries of about 200 million BOE at an average cost of $3.5 million. Today, its typical per-well reserves stand at 100,000 barrels of oil, 40,000 barrels of natural gas liquids (NGLs) and 600 million cubic feet of gas, for a total of 240,000 BOE.

At 2009 per-well average costs of $2.9 million, the economics of the Cleveland program are robust. Further, the company aims to reduce drilling costs to $2.6 million per well.

The company’s recent horizontals in Lipscomb County, Texas, attest to the Cleveland’s potential. The #3H and #4H 346 Cooper flowed for a combined 1,300 barrels of oil and 6 million cubic feet of gas per day. The nearby #5H 358 Cooper produced 351 barrels of 44-degree API oil and 1.4 million cubic feet of gas per day.

In fact, Cleveland development has provided a template. “EOG has found and is currently testing several similar oil plays,” said Thomas.

Sooner Action

The Oklahoma side of the play is also active. Oklahoma City-based Chesapeake Energy Corp. has reported numerous prolific completions, particularly in hot spot Ellis County. In addition, far to the east of the main development area, the company has brought in high-rate gas and condensate producers, at its #1-6H Carter in Custer County and #1-24H Bray Trust in Dewey County. The Carter well was completed for 5.1 million cubic feet and 413 barrels of condensate per day; the Bray Trust made 2.2 million and 787 barrels a day.

Chesapeake holds 100,000 net acres in the Cleveland play, and has drilled 44 gross horizontal wells to date. It has 625 potential locations left to drill, so it has barely scratched the surface.

According to the company’s April 2010 presentation to investors, per-well resources stand at 640,000 BOE, and the total volume of resources net to Chesapeake is 345 million BOE. That far exceeds volumes previously thought to reside in the entire play.

Northern Custer and southern Dewey counties have also hosted excellent completions, by smaller independents, including JMA Energy Co. LLC’s #1-28H Chester Owens. The 2009 Dewey County well produced 6.9 million cubic feet of gas and 379 barrels of 48-gravity API oil. Duncan Oil Properties Inc., of Oklahoma City, has also drilled Cleveland producers, including two in Custer and two in Dewey.

If horizontal drilling success spreads from the current mainstays to encompass the Dewey/ Custer outlier, the Cleveland could reach major proportions.

“It will be interesting to see how these wells will hold up from a production standpoint,” says the Geological Survey’s Boyd.