FORT WORTH, Texas—The San Andres Formation on the Central Basin Platform of the Permian Basin has been commercially exploited vertically since the 1920s. Now, Elk Meadows Resources LLC and other privately held independents have begun exploiting the resource with horizontal wells.

“We started drilling in late 2014, and we’ve drilled six producing wells. We have majority control of 15 sections and 100% of it is operated,” said Terry Dobkins, president and CEO at Elk Meadows, speaking at Hart Energy’s recent DUG Permian Basin conference.

“We believe that we have about 90 more wells to drill, assuming one-mile laterals and drilling six wells per section; and then [Elk will] fall into what it considers an economic reservoir to work with. So, there’s a lot of drilling left to do.”

A number of factors attracted Elk Meadows to the play. There was a large area of historically proven production from the San Andres reservoirs, and early entrants had already demonstrated compelling economics.

“The risk profile looked great because [Elk Meadows] was offsetting historical rig production in the San Andres,” he said. “The analysis of the logs, the geography and the geology all looked very strong so it was a really good fit for us in regard to the economics. It made a lot of sense. We didn’t have to go into it and pay $20,000 per acre. We would build a company at under $1,000 per acre and cut the risk on it.”

The project has since displayed strong well returns despite the poor crude oil price environment, and “is poised to deliver outstanding results as the industry strengthens out of this downturn,” Dobkins continued.

He estimated that forecast gross production for June 2016 will be in excess of 1,100 barrels of oil equivalent per day (boe/d) gross, about 99% oil.

Elk Meadow’s largely contiguous acreage block is 100% operated, and leasehold has working interest ranging from 60% to 80% with net revenue interests of 75% to 78%.

Another good feature of land in the San Andres is that operators  have flexibility to tailor the pace of land development to match the commodity price environment. Currently, six horizontal San Andres wells per section are planned with full development, according to Dobkins.

“We will drill some more wells this year and work this at a disciplined rate. One of the things that we think is important is to drill a well or two, study them, watch the production, watch the cost, then see what we can do better. We can then work the next group of wells so that we learn from well to well to improve the results as we go. So far, we think the process has worked.”

 

Elk Meadows has three wells that have been on production more than a year, and “all of them exceed what we expected on these wells,” he said. (See “First three wells look excellent” figure.)

Additionally, Dobkins said the company’s first 1.5-mile lateral drilled was a “game-changer.” It began flowing last month at more than 350 bbl/d of oil with about a 14% oil cut.

“That was better than what we’ve seen before without a pump in the well. Once we put the pump in, the production came up to over 500 barrels of oil a day, still with a 14% oil cut,” Dobkins said.

“That was a better rate and water cut than what we’ve seen on our properties. It tells me that we need to look hard at doing more long laterals and keep using science and experience to improve the results. It has been a lot of fun and it excites me see what we might be able to do.”

Dobkins advises operators to understand the rocks before getting into the horizontal San Andres--“The San Andres can be really tricky,” he said.

“Over the last few years, wells were drilled by others and ourselves with the expectation of good results, which turned out to have high water cuts. Through hard work and time, we think we have calibrated enough to know how to identify good from bad, and we’ve had good results with that. However, the formation can still be full of surprises, so anyone who is working this play needs to be aware of the science involved before drilling.”

Three-dimensional seismic and a mass-spectrometer continuous logging tool provide Elk Meadows with valuable data about the type of rock and fluids that could be expected, and can show in real time where they are in the laterals.


The “Well Performance” figure shows the data for the first six months on Elk Meadows’ first San Andres well.

“This well showed us that we were not getting a good spread of the fracture. We were getting planar fractures, not a cloud of fractures. So we changed the way that we perforated. We set up the clusters differently,” he said. “It’s the cloud we were looking for, so we feel like we’ve been able to make good progress on the design of these treatments to get better fractures.”

Elk Meadows will continue to study the science of this play, and is hoping to go into a continuous drilling program by year-end 2016.

“Hopefully the oil prices will continue to stabilize upward. We think we are learning enough that we can go into a drilling program and move toward developing a large percentage of our acreage. I’d like to prove up the edges first, make sure we know where our successes are and then pick a way to hammer away at it,” he concluded.

“We have a lot of area to work out there. It’s a huge basin. The San Andres is a wonderful place to be because it has so much oil and there’s a lot left. I’m excited to see where we’re going with it. The results have been great.”

Ariana Benavidez can be reached at abenavidez@hartenergy.com.