From the highway, Kansas seems to spread out flat and featureless, like water poured on a table. Nonetheless, that’s deceptive: elevations in the state range from 700 feet above sea level near the Oklahoma border to more than 4,100 feet near the Colorado line. In between, hidden from casual wayfarers, lie picturesque hills and valleys.
The same sort of illusion holds sway in the oil business. To outsiders, Kansas is old and played out, a small-potatoes play relegated to parochial operators. And yet, there’s some vibrant, highly economic work being done in western and central Kansas these days.
“Kansas is an inexpensive and oil-friendly place,” says Kyle Griffin, co-owner of Cimarron, Kansas-based Paramount Land Inc. “Everything is cheaper here—from day rates for landmen to acreage prices to rig rates.”
The land-services company has seen activity burgeon in southern and western Kansas in particular. “We are seeing new interest from companies based in Denver, Amarillo and Oklahoma City,” says Griffin
The general industry shift from natural gas to oil has translated into more business for traditional oil regions, and the Jayhawk State has attractive conventional plays to offer. Clients from other states enjoy the low entry cost in Kansas, says Matt Peters, also co-owner of Paramount Land. “It’s a big change from five years ago, when it was mostly local Kansas operators and a few majors.” Paramount offers state-of-the-art services, including web-based software that provides real-time updates to its clientele.
“This is Kansas’ time,” says Griffin.
Kansas attractions
Rich Bosher, managing member, Denver-based Riptide Energy LLC, agrees that Kansas has often been overlooked by outsiders. “Some larger companies are active, but many still see Kansas as the land of mom-and-pops.”
Huge independents, including Anadarko Petroleum Corp., Occidental Petroleum Corp. and EOG Resources Inc., do indeed work Kansas, mainly in the Hugoton area. Many other counties are dominated by homegrown Kansas operators that enjoy production of several thousands of barrels a day.
“Local operators are very happy to work within the state, and many don’t care to stray to neighboring states. It’s comfortable and there is running room,” Bosher says.
It’s that running room that has both in-state and out-of-state companies excited. The pairing of 3-D seismic technology with shallow, traditional oil targets has yielded a fresh new set of opportunities. The reasonably priced 3-D cuts drilling risk to the point that Kansas’ inexpensive vertical wells are staunchly economic, even though total oil recoveries are small.
“The beautiful thing about Kansas is that you don’t need extraordinary capital to find oil. Today, a small independent can put money into a Kansas deal and find a couple of hundred thousand barrels of oil,” says Bosher. The Lansing/Kansas City play is of particular interest—during the past several decades, the Arbuckle garnered most of the exploration attention. Now effort and energy are being devoted to the Lansing/Kansas City, and it’s complicated enough that shallow opportunities still remain.
Thanks largely to 3-D seismic, oil production has been rising in Kansas. In 2007, the state produced 36.5 million barrels of crude and in 2008 it made 39.5 million barrels. From January through October 2009, 32.7 million barrels had already been produced. The new flows are coming mainly from counties in western Kansas and on the Central Kansas Uplift.
Although Kansans have embraced 3-D seismic, horizontal drilling remains rare in the state. “So much oil has been produced in Kansas—more than 6.3 billion barrels—and it has so many reservoir intervals, that there must be a lot of tight rock that’s saturated with oil,” says Bosher. “I think horizontal technology will be important for the future, but right now the technology that’s making a difference is 3-D.
“Kansas is going to be around for many years to come,” he says. “It may not be for the big companies, but Kansas plays are going to keep hundreds, if not thousands, of people busy for the next several decades.”
Credo Petroleum Corp.’s #1-9 Huslig, the company’s best Kansas well to date, was a prospect generated by geologist Ed Pugh. The Barton County find has produced 92,000 barrels of oil in its first 11 months on line.
Going for oil
Denver-based Credo Petroleum Corp. prospects for oil in Kansas, says Marlis Smith Jr., president and chief executive. The 32-year-old firm is an anomaly: it is one of the rare penny-stock companies started in 1978 that is still around. Not only that, Credo is thriving.
Smith recently took the helm at the firm, after long-time CEO Jim Huffman retired. “I’ve been charged with growing Credo, and Kansas is a big part of our growth plan,” he says. In addition, the company works in the Williston Basin’s Bakken play and in the Anadarko Basin of Oklahoma and the Texas Panhandle. It also applies its patented Calliope gas-recovery technology to candidate wells.
“We got involved in Kansas four years ago when we decided to hone our focus on oil,” says Ken DeFehr, engineering manager. “We had a bullish outlook for oil prices, and we wanted to ramp up our oil exploration efforts. Kansas was an obvious choice for us.” Credo has played the Midcontinent since its inception, and it liked the shallow depths and producer-friendly atmosphere in Kansas.
“And we love the economics,” says Smith. The company’s success rate is about 50% on wildcats, and the Kansas program has helped it achieve a better balance between oil and gas production. Last year, for the first time in its history, oil revenue exceeded gas revenue.
Credo has drilled 51 wells in the play to date, and it holds more than 150,000 gross acres. The company counts Nebraska’s Cambridge Arch area in with its Kansas properties, as the structure is essentially an extension of the Central Kansas Uplift.
This year, Credo plans to drill and participate in about 35 wells on the Central Kansas Uplift and western Kansas. Its per-well working interests range between 12.5% and 85%, and per-well costs are $150,000 for a dry hole and $425,000 for a completed well.
“We use 3-D on all of our prospects,” says Torie Vandeven, exploration manager. “It really helps our success rate.” Prospects typically host one to five wells, and recoverable reserves can be 300,000 barrels and higher on multiwell seismic bumps.
“We think we can see closures as subtle as 10 to 15 feet on the seismic,” says Vandeven. “We’re looking for satellite fields in the neighborhood of the large fields that were found as far back as the 1950s.”
Structure is king in Kansas: prospects are carbonate buildups on highs. “We hunt for structures in the range of 80 to 160 acres that have good indications of downdip shows from existing well control,” she says. 3-D seismic helps find the structures and also sheds light on how many wells are really needed to drain a feature, so unnecessary wells can be eliminated.
Still, while the 3-D data can reduce structural risk, stratigraphic risk remains. “It’s sometimes not enough to just hit the bump, because structurally high wells can come in high and tight,” says DeFehr.
That means the multiple-pay opportunities are a decided benefit. Credo prospects mainly for Middle Pennsylvanian Lansing, a stacked sequence of carbonate cyclothems. “Several intervals can be productive on structural highs,” Vandeven says. “That’s why the success rate is so good—we have Lansing intervals A through L, and any of these can produce.”
Zones above and below the Lansing are also objectives, including the deeper Arbuckle. On the crest of the uplift, the rock section goes from the base of the Lansing to the Lower Ordovician Arbuckle almost immediately. Off the western flank toward the Hugoton Embayment, the section expands to include Cherokee, Marmaton, Morrow and Mississippian reservoirs between Lansing and Arbuckle. Drill depths are 4,000 feet on the Uplift and from 4,500 to 5,000 feet in western Kansas.
“We have many opportunities in that 500 to 1,000 additional feet,” she says. “Kansas is a forgiving area for geologists.”
Opportunities for multiple pays are a decided benefit in Kansas. At present, operators are particularly interested in Pennsylvanian Lansing/Kansas City prospects.
Conventional preference
“Oil prospects in Kansas are shallow, inexpensive to lease, and inexpensive to drill and produce,” says Barry Gager, exploration manager for Denver-based Flatirons Resources LLC. “We also like Kansas because there is little federal land in the state, and it’s very friendly to oil and gas.” In contrast to jurisdictions such as Colorado, permits to drill can be granted in a matter of days in Kansas.
Flatirons is a three-year-old start-up. It initially entered west-central Kansas via a small, nonoperated working interest in the Lansing/Kansas City play. “We saw some success, and wanted to do more,” says Gager. The company began to lease, and now holds more than 100,000 acres in Kansas. In addition, it works the Fayetteville shale play in the Arkoma Basin and several plays in the Williston.
Last year, Flatirons operated 12 wells in Kansas and completed four. This year, it plans to operate between one and two dozen tests and participate in six to eight nonoperated wells.
“We have a lot of acreage, and we’re looking for partners on four project areas,” says Gager.
Kansas operators generally have to shoot new 3-D data on their properties; unlike other places in the Patch, the state lacks a central repository of seismic information. 3-D data can be permitted, acquired and processed for $35,000 to $40,000 per square mile, and providers are abundant and competitive. Each operator generally acquires its own proprietary data, but arrangements can be made.
“In some areas, we’re able to make license deals with companies that have shot data, and in others we join with neighboring operators. Most parties are willing to do data swaps to get a bigger geologic picture,” he says.
Flatirons works Graham, Lane, Norton, Sheridan and Gove counties for the most part, on the Central Kansas Uplift and down its western flank. Well results can range from terrible to a couple of hundred thousand barrels, says Gager. Based on wells drilled in its area since 2000, and excluding more successful Graham County, Flatirons figures about one out of three tests is completed, and reserves per completed well average between 35,000 and 60,000 barrels. Dry hole costs run from $135,000 to $170,000 per well, and completions add another $200,000 to $300,000. Typical features support one to three wells.
“The key to economic success is the 3-D seismic,” he says. “It allows us to place locations in the optimum position, and it reduces risk by constraining the structure.”
The seismic is very good at imaging the subtle structures. In Kansas’ Lansing/Kansas City play, five to 10 feet of closure can be enough to ensure a good producer. Naturally, since this is an oil play and the target zones are quite thin—on the order of two to six feet net—seismic data do not resolve reservoir properties. Stratigraphic risk remains, as does the risk of charge.
A side benefit to Kansas: it’s one of the places left in the Patch where drillstem test equipment is readily available. “We think DSTs are well worth the cost for the information we gain,” says Gager.
Decidedly, with many explorers concentrated on resource plays today, traditional prospectors working Kansas and similar plays may actually have a leg up. “We think we can cherry pick conventional prospects, because many companies are so heavily focused on shales,” says Gager. “And it’s fun to drill these wells.”