While oil-in-place estimates appear promising, the Heath remains a tough shale to crack.

When Norwegian national oil company Statoil joined privately held Cirque Resources LP for a nonoperated interest in the Heath shale in Montana last year, the move seemed to give at least some credence to the potential of the play, which has seen its share of negative prognosis from Wall Street analysts. Holding out hope, locals chatter that the play could become a mini-Bakken shale, like the economic engine just across the North Dakota border to the east.

Some 30 wells have targeted the Heath in the past three years, only 14 using modern horizontal drilling and completion techniques. Of those, just eight have survived mechanical failures. Initial production rates are shy of celebration as yet, yielding roughly 100 to 450 barrels of oil equivalent (BOE) per day at their peak.

One of three active operators, Central Montana Resources LLC has a vested interested in the success of the play. Its near-500,000 acres in Petroleum, Garfield, Rosebud, Fergus, Golden Valley and Musselshell counties, acquired as a first mover in 2007, represent 100% of the San Antonio-based company’s portfolio. Steve Lipari, CMR chief operating officer, spoke at Hart Energy’s DUG Bakken and Niobrara conference in Denver in May, and detailed why the Heath deserves continued merit.

“It’s an interesting play firmly on the exploration side,” he said. “The play has a ways to go, but there is enough data to garner some excitement about the next step.”

Particularly, oil-in-place is estimated at 7 million barrels per section in the poorer parts of the field, to as high as 20 million barrels in the better parts. Add to that an average 30% oil saturation throughout, with an API gravity range of 29? to 36?.

The Heath is a Mississippian-age deposit in the Big Snowy group of the Central Montana trough. An “excellent source rock,” it sits above the Madison group and below the Tyler sandstone, from which 130 million barrels of conventional oil has been produced from Sumatra Field historically. The Heath, covering some 2 million acres areally, lies at a relatively shallow 4,700 feet depth, to 5,500 feet at the most. “The Heath was buried deeper at higher temperatures like the Bakken,” Lipari said, “and has been uplifted considerably.”

The rock is good, he said, with three distinct members. He describes the Heath “C” as the hot black shale member interlaced with limestone stringers, and is “the landing point of choice” of all active operators. This member is 50 to 60 feet thick at the core of the field, with total organic content of 2% to 20% and an Ro factor of 0.99. The Heath “B” above is up to 40 feet thick, a cyclic limestone and dolomite mixed with interbedded shales. Both are naturally fractured.

“All the oil-prone indices look good,” he indicated. Oil saturation ranges from 26% up to 55% in the best parts of the field. “No matter what depths we’ve attained cores in this play, it’s all about the same.” The better wells are located where the oil saturation is 50% or greater, he said.

Establishing a dataset

Central Montana Resources was formed by chief executive Kevin Beiter, a geologistturned- energy-lawyer making his transition into exploration. Beiter established the position with a $15-million initial investment. CMR amassed 485,000 net acres straddling the Musselshell River, a landscape immortalized in the epic television drama “Lonesome Dove.”

Lipari is a 30-year veteran, most recently as director of new ventures for Newfield Exploration Co. and before that as president and chief executive of Aspect Abundant Shale LP. He spent the bulk of his career at EOG Resources Inc., where he was operations manager of its Fort Worth East division and a start-up member of EOG’s Barnett project. He is not a newcomer to shale exploration.

Lyco Operating and Halliburton joined Central Montana Resources as partners in 2010 to drill two wells. With a capital infusion of $27 million from Maverick Capital, for a total $47 million raise in 2011, an additional 12 wells were drilled in the following two years.

The emerging play, however, has not been without its exploratory setbacks. Six of 14 horizontal wells encountered technical woes related to pipe failure, incorrect azimuths and poor zone landings. The first four were drilled by CMR, all noncommercial. “The first horizontal wells were challenged mechanically. They provided a good modern dataset— but not much beyond that. That’s the price for being the first in an emerging play.”

A shale that tops the Heath B formation caused early angst in well design. “The capping shale is very ductile and basically just came apart on us if we left it exposed. We had to sort through that with the pipe program. But it’s a good frac barrier,” Lipari added.

The landing point for the lateral proved critical as well. “Just like the Bakken, you’re looking at 10- to 15-foot landing zones. You’ve got to have good directional drilling services to accomplish it.”

About two-thirds of Heath wells have been completed with perf-andplug designs; the remainder with Packers Plus. “The verdict is still out on which ones of those work,” he said. One area needing more evaluation: all wells to-date have been fracture-stimulated with slick- water systems. “The play needs additional experimentation with stimulation methods,” he said.

Improving wells

Lipari did not reveal CMR well results, which he emphasized have been a mix of verticals and horizontals and drilled broadly east-to-west across its acreage position. He did, however, discuss results from Cirque, which has drilled four wells, and Fidelity Exploration & Production Co., the E&P division of MDU Resources, with five wells drilled. These are the only other operators in the play, and they are more focused in the center of the play, all wells horizontal.

Cirque’s Rock Happy 33-3H-2 well, which featured an initial production (IP) rate of 270 barrels of oil per day, has been online the longest, just over a year. It has cummed more than 34,000 barrels of oil. “We think the Rock Happy is a 170,000-barrel EUR (estimated ultimate recovery) well,” he said.

Fidelity’s Schmidt #44-27H well boasts the highest IP at 447 barrels per day with an EUR of 132,000 BOE. The other leading wells, Grebe 31-33H and Coffee 3-2H, also drilled by Fidelity, produced initially 285 and 159 barrels per day, respectively. “We think these are going to be north of 100,000 barrels (EUR),” he said. “The Cirque and Fidelity wells have more consistent producing characteristics.”

Well costs so far have run between $4- and $5 million.

While the oil-in-place is not as high as in other marquee plays, “you’re looking at 5,000- foot total-vertical-depth wells, and extended laterals haven’t been tested in the play. We need a lot more wells” to understand the Heath, he believes; it would take about 50 to reach critical mass.

Through its joint venture with Cirque, Statoil has shot the first 3-D seismic in the play and plans from two to four wells this year. “Everybody is interested in where this is going to take the play.”

Central Montana Resources is looking for a joint-venture partner as well to fund further appraisal. “We’re looking for every way we can to get more wells drilled in the play,” said Lipari. “We’re going to maintain our land position and ride this thing out.”