By Mike Ellerd
For Petroleum News Bakken
Although the jury may officially still be out, Petroleum News Bakken decided to take a closer look at the Heath in an attempt to better assess the prospects of the play. The approach was to look at what has been done strictly in terms of horizontal exploration and production in the play over the last four years by taking a more quantitative look at available exploration and production data. Several people familiar with the play were contacted to provide some insight beyond what the data indicate.
In short, it was found that drilling activity in the play since 2009 has actually been somewhat limited, and production results from what activity there has been is spotty. What the play holds in the future remains to be seen, but from what Petroleum News Bakken found, the play has several significant challenges.
The Heath formation is part of the Big Snowy Group that overlies the Madison Group in central Montana. The Heath is a late Mississippian, organic-rich shale and limestone formation lying at a depth of approximately 3,500 feet and ranging in thickness from 200 to 300 feet. The Tyler sandstone formation overlies the Heath formation. Occasionally the Heath is referred to as the Heath-Tyler formation.
According to a report prepared by Great Northern Gas Company in 2009, the Heath formation is dominated by organic-rich black shale and an organic-rich limestone known as the Heath or Van Dusen limestone. According to the report, this limestone is generally 50 feet to 75 feet thick, and is composed of thinly bedded, petroliferous limestones, dolomites and shales. Great Northern says the Heath limestone is considered the primary source rock interval in the formation and was, at the time of the report, the proposed target for horizontal drilling.
The Montana Bureau of Mines and Geology identifies two key members of the Heath formation. First is a middle carbonate member consisting of thin limestones and dolomites that is up to 40 feet thick. That middle carbonate member overlies what the bureau refers to as a “hot” shale known as the Cox Ranch member. That “hot” shale ranges in thickness from 10 feet to 60 feet with high organic content.
The Heath prospect extends across northern Rosebud and southern Garfield counties and west across portions of Petroleum and Musselshell counties then into the eastern portions of Golden Valley and Fergus counties.
Exploration of the Heath dates back to 1919 when Van Dusen Oil discovered oil in the Devil’s Basin field of the Heath in Musselshell County, but it wasn’t until the mid-1980s that the play was actively explored with conventional exploration beginning in the Devil’s Pocket field in Musselshell and Golden Valley counties. Horizontal exploration, however, only began in the last few years and focused on Musselshell, Petroleum and Rosebud counties with some additional exploration in Garfield.
Montana Board of Oil and Gas Conservation data
Data on oil production in Montana is maintained by the Montana Board of Oil and Gas Conservation, a division of the Montana Department of Natural Resources and Conservation.
Going back through 2009, which is as far back as the board has hearing dockets posted on its website, Petroleum News Bakken found a total of 109 applications filed with the agency to drill horizontal oil wells in the Heath formation. Most of those applications, 73, were filed in 2012, followed by 29 filed in 2011. Six applications were filed in 2010, none in 2009, and one has been filed in 2013 and is on the board’s June hearing docket with hearings scheduled for June 5 and 6.
Leading in total Heath applications is Cirque Resources LP with a total of 35 applications. Fidelity Exploration and Central Montana Resources, CMR, tie for second place with 33 applications each. True Oil LLC filed six applications in 2011, Cabot Oil and Gas Corp. filed one application in 2010, and Onshore Holdings LLC has filed the most recent application seeking to drill a horizontal well in the Heath or Bear Gulch Member of the Tyler formation in Musselshell County.
Petroleum News Bakken then looked at the total number of wells that have actually been drilled in the Heath formation since 2009. No wells drilled by Cabot Oil and Gas were found, nor were any found that were drilled by True Oil in the Heath. CMR was found to have drilled 10 Heath wells, Fidelity has drilled five, and Cirque has drilled four, for a total of 19 horizontal wells drilled in the Heath formation since 2009, all of which were completed in either 2011 or 2012.
What did the wells produce? Of the 19 Heath formation wells drilled and completed by CMR, Fidelity and Cirque since 2011, only five are currently producing — four of Fidelity’s wells andone of Cirque’s wells. All of the remaining 14 Heath wells are listed as shut-in, abandoned or dry. Nearly all 19 wells produced some oil but all, except the five that are still producing, exhibited sharp production declines.
All five of Fidelity’s wells are in northern Rosebud County. The company’s Kincheloe 11-23H well went on production in July 2012 and produced a total of 2,598 barrels of oil through November 2012, but that well has since been shut in. The Kincheloe produced 1,134 barrels of oil during 20 days of operation in July 2012, i. e., days that the operator reported a well was actually pumping for some period of time during the day. Thus the Kincheloe had a rate of 57 barrels of oil per day, but production quickly declined, and it produced only 40 barrels in nine days of production in November 2012 for a final rate of 4.4 bopd.
The best of Fidelity’s four remaining wells is the Schmidt 44-27H, which has produced a total of 26,041 barrels of oil over 335 producing days for an operated daily average of 77.73 bopd. Fidelity’s Coffee 31-2H has produced 18,394 barrels over 243 producing days since going on production in August 2012 for an operated daily average 75.70 bopd. The Grebe 31- 33H well has similar results producing a total 17,799 barrels over a total of 224 producing days since going on production in September 2012 for an operated daily average of 79.46 bopd. The fourth producing Fidelity well is the 71 Ranch 44-1H, which went on production in October 2012 and has since yielded 5,936 barrels over 181 producing days for an operated average of 32.80 bopd.
Combined, Fidelity’s five Heath wells have produced a total of 70,768 barrels over a total of 1,098 operating days since March 2012, for an average production of 64.45 bopd per well.
Cirque Resources’ wells
The one producing Cirque well is the Rock Happy 33-3H-2, also in Rosebud County. Since going on production in November 2011, that well has produced a total of 34,310 barrels of oil over 371 producing days for an operated daily average of 92.48 bopd. This is the highest producing well of all of the Heath sells that Petroleum News Bakken found in the Montana board’s database.
Two other Cirque wells, the Hit Parade 31-3H and the Lucky Strike 10-4H, in Musselshell and Garfield counties, respectively, are both shut-in, but they produced totals of 3,495 and 4,185 barre; s, respectively, and had operated daily averages of 19.97 and 24,75 bopd, respectively. The fourth Cirque well is the Rock Happy 33- 3H, which is listed as abandoned by the Montana board but did produce a total of 1,003 barrels over six days of operation in January 2012.
Collectively, Cirque’s four wells have produced a total of 42,993 barrels over a total of 721 operating days for an average of 59.63 bopd per well.
Central Montana Resources
All 10 of CMR’s wells are in Petroleum County, and all were tested between February 2011 and May 2012. One well produced no oil at all, another produced only one barrel and still another produced only eight barrels. Total oil production from the remaining seven wells ranged from 176 barrels to 2,286 barrels, and average operated daily production in those seven wells ranged from 1.62 to 6.13 bopd. According to board records, no CMR wells have produced since September 2012. In total, the 10 CMR wells produced 5,527 barrels over 2,299 operating days for an overall average of 2.40 bopd per well.
All together, the production data that Petroleum News Bakken evaluated from the Montana board’s data base indicated that 19 Heath wells produced a total of 119,228 barrels over a total of 4,118 days of operation for an operated average daily production of 28.97 bopd per well.
What’s the problem?
Montana board geologist Jim Halvorson has heard about drilling problems due to rock stability issues, but Halvorson believes the biggest problem in developing the Heath is the lack of over-pressure.
“You’re not as deep and you’re not as hot, and you probably didn’t generate as much oil, and sometimes the source is actually thinner, ” Halvorson told Petroleum News Bakken. He said there wasn’t evidence of over-pressurization in central Montana from the early vertical wells, and if the goal is to try to get oil to move out of tight rock, he believes that over-pressure is significant.
“I think you’ve got oil in the system, but figuring out a way to get that oil to move out of tight rock into the well bore is the issue, ” Halvorson said. “You can frack and access the oil that you’re in contact with after the frack, but then getting any significant volume to move out of the rock into your fracture system is going to be impeded with lower pressures. ”
That may be an oversimplification, Halverson said, but added that he is seeing more and more reference to pressurization as the problem with the Heath. “If I had to put one thing in central Montana into my opinion, it’s probably the lack of significant overpressure, and it hinders production. ”
An independent producer’s view
Tom Hauptman is an independent oil and gas producer with more than 35 years of experience based in Billings, Mont., and is the owner of KGH Operating Co. Hauptman told Petroleum News Bakken that while he personally has no direct experience in the Heath, he knows there have been a number of companies that have been exploring the play but with limited success. Hauptman believes a lot of people, he included, believe there is oil in the Heath, but he said the technology simply doesn’t exist to efficiently extract the oil.
“The Heath presents a multitude of challenges compared to the Bakken, ” Hauptman said. First, the Bakken, at between 11,000 and 13,000 feet, is much deeper than the Heath and is highly overpressured with the energy necessary to move the oil to the surface. The Heath, on the other hand, is shallow and under-pressured, “so you’re not getting Mother Nature to try and help you push it out. ”
The other challenge, according to Hauptman, is the rock itself. “The Bakken is like tombstone and you can drill through it with no problem at all … because it’s competent rock. ” But the geology of central Montana has been “up and down geologically many, many times, ” Hauptman added, and as a result the Heath Shale is highly faulted. That faulting, he said, present serious problems for drillers.
“You’re drilling in the Heath and all of a sudden you’re out of the Heath. All of a sudden you’re out 200 feet and you don’t know where to go. Do you go up? Do you go down? Do you do back up and do an open-hole side-track? These are all expensive things to do. This high-tech stuff is not cheap. I have first-hand knowledge of this. When you have those kinds of problems, suddenly your $5 million or $6 million authorization for expenditure is $8 million to $10 million. ” When that happens, Hauptman continued, the number of barrels necessary to reach breakeven increases significantly. A third challenge, according to Hauptman, is that there isn’t the competent rock in the Heath like there is in the Bakken, which, he said, causes serious drilling problems. “As you’re drilling it caves in behind you and you get your bit stuck, and you can’t get out of the hole so then you lose your whole drill string. These are the nightmares they’ve had out there. They don’t have that problem in the Bakken, ” he noted. “The Bakken’s just pretty much wellbore manufacturing cookie cutter. The Heath’s just not that way. ”
But Hauptman firmly believes the Heath has oil. “There’s no question the oil is there. It’s a question of how does one get it out of the ground economically. That’s just the nature of the beast. ”
And it is not unusual in the infancy of an oil play to have less-than-stellar well results. According to Lynn Helms, director of North Dakota’s Department of Minerals, “Things were very slow in the Bakken play for about two years until they cracked the code. ”
© Copyright 2013, Petroleum News Bakken. Reprinted with permission.www.PetroleumNewsBakken.com