COLUMN-Dreaming of Bakken, Kansas welcomes oil drillers: Kemp

Tue Jan 8, 2013 11:06am EST

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By John Kemp

LONDON Jan 8 (Reuters) - While other states struggle with how best to regulate horizontal drilling and hydraulic fracturing, or wonder whether to permit the practice at all, Kansas is actively courting fracking firms in the hope of repeating North Dakota's oil boom.

Interest centres on the Mississippian Lime Play (MLP), a porous limestone formation found under parts of southern and western Kansas as well as across the boundary in northern Oklahoma.

The Mississippian Lime has already produced more than 1 billion barrels of oil in the state since 1915 from conventional wells but was considered largely tapped out.

Now horizontal drilling and hydraulic fracturing have kindled hopes of a new oil rush as drillers unlock oil and gas previously trapped in impermeable parts of the rock formation.

"The potential economic benefits to Kansas could be significant, resulting in hundreds of wells drilled, billions of dollars in investment, thousands of jobs and industry activity in the MLP for the next 20 to 30 years," the Kansas Department of Commerce enthuses on a special website created to promote the play.

The Kansas Corporation Commission (KCC), which regulates oil and gas, has already organised tours of both North Dakota and Oklahoma to understand the transformative impact of the oil boom and its impact on local residents.

And in November, state leaders, including Governor Sam Brownback, hosted a high-level conference to hear an update on drilling and discuss how Kansas businesses could benefit from oil and gas activity.

STARTING SMALL

In the first 10 months of last year, 143 horizontal wells were drilled in the state, up from 50 in the whole of 2011 and 10 in 2010. Just over 30 rigs were drilling at the end of October, of which 18 were working on horizontal wells. Half were contracted to Sandridge, which holds by far the largest position in Mississippian acreage in the state.

Production from the Mississippian remains tiny compared with the state's conventional oil output let alone more mature unconventional plays such as the Bakken and Eagle Ford. Kansas has more than 46,000 active oil wells (mostly stripper wells producing less than 10 barrels per day) and another 24,000 producing gas.

Unconventional oil and gas production amounted to only 10,000 barrels of oil-equivalent at the end of October, 3.8 percent of the state total. Nevertheless, there is evident excitement at the potential for hydraulic-fracturing to bring a Bakken-like boost to the state economy.

FRACKERS WELCOME

The Brownback administration is unashamedly pro-business, and keen to encourage economic development.

The state is solidly Republican. All state-wide officeholders, both U.S. senators and all four U.S. representatives are from the party, which also controls both chambers of the state legislature by lop-sided majorities (32-8 in the state senate and 92-33 in the lower house).

State agencies are also sympathetic to fracking. In a basically favourable "public information circular" published in May 2012, the Kansas Geological Survey (KGS) explained that of 244,000 conventional vertical wells drilled in the state since 1947, some 57,000 wells have already been hydraulically fractured, without ill-effect.

In contrast to other states, which have agonised over the potential for fracking to lead to contamination of other rock formations and drinking water resources, KGS argued "strong economic incentives compel operators to avoid propagating fractures beyond the target formation and into adjacent areas."

"Kansas has not encountered the problems some other states have, and no documented cases of ground-water contamination by hydraulic fracturing have been reported in the state."

"Kansas' favorable geologic setting, its regulatory process, and its successful history of hydraulic fracturing and fluid management make it one of the safer regions of the country to employ the practice."

In case anyone doubted the state's enthusiasm, the Kansas Corporation Commission has published a note by the KGS and the University of Kansas which states bluntly:

"Induced seismicity (earthquakes) has not been related to hydraulic fracturing. The U.S. Geological Survey has stated that there is no evidence to suggest that hydraulic fracturing itself is the cause of the increased rate of earthquakes in the midcontinent".

Wastewater injection can trigger seismic activity but the KCC and KGS downplay the risk. "It is important to remember that those (waste) fluids are the result of any oil and gas production, and independent of the practice of hydraulic fracturing."

"Earthquakes would someday have occurred anyway as a result of slowly accumulating forces in the earth ... injection just speeds up the process."

SCOPING THE PLAY

Most drilling has so far occurred in parts of the Mississippian in Oklahoma, where more than twice as many rigs are operating and holes have been drilled.

In Kansas, exploration companies are still trying to scope out the play and identify sweet spots. Most wells have been drilled in just three counties along the Oklahoma border (Harper, Barber and Comanche) though wildcats have been sunk in another nine and the play underlies parts of 34 counties in total ().

Early exploration was directed towards natural gas, but with gas prices stuck at just $3-4 per million British thermal units (mmBtu), the focus has switched to finding fairways with more condensate and crude.

"The Lime is a reasonably low-cost play where hydrocarbons have been found before, with lots of (conventional) wells drilled in the past," the Oil and Gas Financial Journal wrote in August 2012 ("Horizontal drilling boosts production in Mississippi Lime" Aug 1).

"The nice thing about this trend versus shale is that it requires low-horsepower equipment, and smaller players can be competitive."

"The limestone's porosity and natural fractures also can mean less expense on the drilling and hydraulic fracturing parts of the project. Expenses can total half and even a fourth of typical unconventional well efforts."

By far the largest operator across the Mississippian is Sandridge, with larger companies like Chesapeake, Range Resources, Shell and Devon playing a much smaller role in the area.

The Mississippian Lime is just one layer in the vast Anadarko sedimentary basin. In other parts of the Anadarko, Continental Resources is targeting production from the Woodford shale.

For the time being, the Mississippian Lime remains a highly speculative play. "No one knows for sure" how much drilling there may eventually be, the Kansas Corporation Commission admits. "The activity in the Oklahoma region of the MLP has been encouraging, but it could be another 12-18 months before the state has a more realistic estimate of the economic impact."

But if significant quantities of oil can be produced from the Mississippian, drillers and frackers will find no state more welcoming.

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