High costs, dismal production and low commodity prices have created a perfect storm of sorts in the Tuscaloosa Marine Shale.
And as Business Report details in a feature from its latest issue, the result has been significant financial losses for some of the major players active along the shale stretching across central and southeastern Louisiana and into central Mississippi, bringing drilling activity to a near standstill across the entirety of the estimated 8 million acres comprising the oil-rich TMS.
Goodrich Petroleum Corp. of Houston, which holds about 300,000 net acres, is one of the largest land holders in the shale play and has undoubtedly been hit the hardest.
In January, the New York Stock Exchange suspended trading of the oil and gas producer and began the delisting process after its stock closed as low as 16 cents per share. It’s a far cry from the heady days of 2013, when oil prices hovered above $100 a barrel and Goodrich was pumping significant resources into the shale—and its stock reached highs eclipsing $27 per share.
On April 15, Goodrich filed for Chapter 11 bankruptcy protection to eliminate $400 million in debt, with the company saying it expects to maintain sufficient liquidity during restructuring to continue operations as well as pay employee salaries and suppliers. Despite the discouraging financial news, Goodrich President Rob Turnham feels a moderate upturn in oil prices will eventually get things moving again. About 25 to 30 Goodrich wells are still producing in the TMS.
“We’ve been pleased with the well results and service costs have come down, so clearly the play will work again in the future,” Turnham says. “We’ll just need $50 to $60 oil before we can generate sufficient rates of return.”
He admits other factors have to be considered. “Like everyone else, we’ll have to make sure we have enough capital and the balance sheet is in good shape before we can aggressively start drilling again,” Turnham adds. “The play will work; it just needs higher oil prices before we can spend the money. But as we sit here right now, it’s all about survival in this downturn.”
There’s some disagreement as to how high oil needs to be before drilling becomes cost effective. Don Briggs, president of the Louisiana Oil and Gas Association, feels oil may need to reach as high as $70 a barrel before development becomes profitable again.
“TMS is a high-price barrel of oil,” Briggs says. “You’re going to need sustained good prices. The finding cost is higher than other places. While there is production from wells that are already in place, drilling is out of the question.”
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