So far, the Tuscaloosa Marine Shale oil play that crosses the north side of the Capital Region has passed most of the important tests. The oil is there, it can be extracted at a reasonable cost and companies have shown they’ll invest real money in the shale play.
But—as Business Report details in a feature from the current issue—impatient landowners haven’t yet gotten an answer to what, for them, is the most important question: Will the TMS be profitable for everyone involved? After the recent drop in oil prices, they’re going to have to wait a little longer.
“It’s pretty much the deepest [unconventional] play in the country,” says Amelia Resources founder Kirk Barrell, who estimates that the TMS holds more than 9 billion barrels of recoverable oil. “With greater depth comes greater cost.”
By his count, 52 wells have been completed. Generally speaking, those wells have produced consistent results that are “very attractive” when oil is at $100 a barrel. But when prices dip below $80, as they have this fall, companies tend to pull back. At the close of business Wednesday, U.S. crude futures settled up 50 cents at $67.38.
An emerging play like the TMS may be more vulnerable than an established one such as Texas’ Eagle Ford, where the price needed to break even is closer to $50. And oil companies, like any other business, want to do a lot better than break even.
The Exxons of the world will be fine, of course. But shale drillers are much smaller and tend to be highly leveraged.
Take Goodrich Petroleum, one of the most active TMS players, with more than 300,000 net acres under lease. The company’s stock price hit a one-year low in October and kept dropping into early November.
“Our best hedge against low oil prices is to slow down,” COO Robert Turnham Jr. recently told analysts during a conference call.
Read the full feature, and check out a related story from the current issue on the state of Louisiana’s other big shale play, the Haynesville Shale in the northwest. Send your comments to editors@businessreport.com.
