Fervor grows for Tuscaloosa Marine Shale by Ted Carter, May 17, 2013, Mississippi Business Journal
Mississippi’s leaders expect a parade of oil drillers to converge on the southwest corner of the state and are happy to cover the cost of striking up the marching music. When a potential to fill seven billion barrels awaits, let’s get cracking, they say. So far, state officials are getting the answer they wanted when they extended a lucrative tax break to energy production companies prepared to drill horizontal wells more than 10,000 feet below ground to reach what is known as the Tuscaloosa Marine Shale (TMS). … Mississippi legislators revved up the enthusiasm of Goodrich Petroleum and counterparts such as Canada-based Encana in this year’s session with a severance tax cut that drops the levy on oil and gas extractions by 80 percent. Goodrich Petroleum says the drop in tax payments on oil and liquid gas extracted from its wells will further enhance a bottom line that has been helped by the company’s progress in lowering the per-well cost to around $13 million. Walter Goodrich called the severance tax reduction from 6 percent to 1.3 percent for the next five years “a very significant improvement in the economics of the early-time wells.”
…
Encana estimates the 80 percent state tax cut will save it $700,000 to $800,000 “of additional cash flow” for each well it puts into operation after July 1. Encana has six deep ground horizontal wells in the TMS and plans two more in the current quarter, though presumably the company would delay the new wells in order to qualify for the reduction in severance taxes. “This five-year program supports the pursuit of commerciality by positively impacting Encana’s economics for the emerging Tuscaloosa Marine Shale play,” said the company created through the merger of PanCanadian Energy Corp. and Alberta Energy Co. Ltd. in 2002. Encana and Goodrich are among a handful of companies already working the deep horizontal wells in the 2.7 million acre TMS. Also active in the region are Devon Energy Corp. of Oklahoma City, Denbury Resources of Plano, Texas; Indgo Minerals and EOG Resources, both of Houston. Drilling of each deep well so far has run from $11 million to $20 million. Encana — which led the pack with 290,000 acres leased in Mississippi midway through 2012 — has decreased its drilling costs from around $20 million to $17 million a well, said spokesman Doug Hock. That cost is expected to go even lower, he added. “We’re budgeting an average cost of approximately $15 million per well for the year,” he said.
…
The state tax cut applies to oil and gas extracted from horizontally drilled wells for a period of 30 months or until the payout of the well, a term used to mean that the oil and gas drilled by the well equals the cost of the well. The legislation applies to all qualified horizontally drilled wells between July 1, 2013 and June 30, 2018. Just how much the lowered taxes will cost Mississippi in revenues is unclear. Much would depend on the level and pace of new horizontal drilling. The money the drillers pay at the 1.3 percent rate will go to the counties in which the drillings is done. Mississippi takes in around $80 million annually in oil and gas severance taxes, with the oil severance tax accounting for the bulk of the tax revenue at about $67.5 million.
…
The prospect of an economic bonanza led Bryant to make the cut in the severance tax part of his Energy Works: Mississippi’s Energy Roadmap plan.
…
Louisiana has designed a severance tax on horizontal drilling wells that does not kick in until the company recoups its cost of drilling the well or for a period of 24 months, whichever comes first. After the two years or recouping of production costs, the tax on horizontal drilling extractions reverts to the state’s standard 12.5 percent.
…
One is that drillers have figured out how to do fracking without it costing the moon. Second, says Smith, associate director of the Tulane University Energy Institute: “With $100 oil you can do it all day and make money.”
…
Don’t look for an official timeframe, says Jack Moody, a former oil field geologist and now program director of the MDA’s Office of Mineral Leasing. “Each company is kind of conducting its own experiments,” he said.
The companies compete in the market “but are pretty good about sharing their drilling and completion techniques,” Moody added. “Everybody knows they aren’t there yet. They are after the common goal. The all want to crack this nut.”
…
“Southwest Mississippi is located at the confluence of the largest pipeline networks in the country, with access to all petrochemical and refining facilities, export terminals, rail, the Mississippi River, the Port of Natchez (which recently announced an expansion to handle increasing cargoes of frac sand), and other important infrastructure,” Batson said in her 400-plus page report titled “Best Practices in Shale Oil and Gas Development.”
…
“Studies show it takes 2,500 truck movements to get a deep ground hydraulic fracturing well up and running and 1,000 movements of trucks a week to support the operations of the well once it is going.” [Emphasis added]
[Refer also to: