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Are Kansas' Oil Production Days Over?

Kansas Oil Production Sputters

Written by Brian Hicks
Posted December 25, 2013 at 7:00PM

It was only two short years ago that Kansas was being hailed as the next big boom state in the U.S. shale revolution. Today, however, all the big oil firms have packed up, and instead of a prospecting boom, Kansas oil has turned into a bust.

mar 2011 oil pumpThe nail in the coffin came in September when Shell Oil Co. announced that it was selling its 45 wells and 600,000 plus acres of leases that it owns, according to the Wichita Eagle.

Kansas was geared up and ready to go for a while there. Hydraulic fracturing and horizontal drilling were quickly changing the landscape of Kansas, and the state as a whole was thriving on the big news. Today, there are still a number of new businesses that were driven by the boom, but at last the boom went thud.

The Mississippian Lime formation that was to ignite the Kansas boom proved too much to handle for most of the companies who were developing it.

Now, that doesn’t mean Kansas oil isn’t still going – the state has always been a modest producer – but in places like Harper and Barber counties, once home to the frenzy, life is pretty much back to normal.

The Mississippian Lime

Maybe things didn’t pan out the way Kansas thought they would, but while I’m sitting here calling this thing a bust, there is a ray of hope down there.

The Mississippian Lime got so much attention because it created quite the boom in neighboring Oklahoma. Everybody thought we could just run it down, follow it northward into Kansas, and the same kind of success would be found there.

The porous limestone formation that runs under northern Oklahoma and southern and western Kansas is perfect for modern drilling techniques in Oklahoma, but as you follow it into Kansas, it becomes a bit harder to manage and develop – too much for most of the companies willing to try.

But that doesn’t mean you have to quit. Where there’s a will, there’s a way... and a whole heck of a lot of opportunity still to be had. And while it has proven difficult, the Mississippian Lime does have some advantages.

If we compare it to the Bakken of North Dakota, its depth is significantly less – about 5,000 feet compared to 10,000 feet in the Bakken, according to Tap Management. That means costs are more advantageous – about $3.3 million per well compared with a typical Bakken well that is about $8 million. And if you’re going to be leasing land, you’ll shell out about $3,000 an acre, compared with some leases in the Bakken that can reach as high as $20,000 an acre.

Sure, the Bakken has become world famous for its achievements, but with more risk comes more reward, right? And it’s not like we don’t know it’s down there; it’s just hard to get.

Companies still need to focus on reducing drilling and operational costs in the Mississippian, and it has proven difficult, but one company that seem hell bent on sticking it out is Oklahoma City-based Chesapeake Energy (NYSE: CHK).

Kansas may not be booming, but it’s not dead yet, either.

The Future

Exploration is still ongoing. Everybody still has their eyes on what might happen. And a big key for the future of Kansas and its Mississippian Lime will be further advances in technology.

It looks like while we do wait and see, oil production for the state is down for 2013; it’s only gone up about 9 percent in general from where it was five years ago, according to the Wichita Eagle.

The shallow oil has already been exploited by fracking and horizontal drilling, but it’s the deeper plays in tight rock that are still there for the taking.

While you all know how industry advances in technology have revolutionized shale development around the country and across the world, the continuous strides in technology will prove essential for Kansas to see anything close to a boom.

But improvements are being made, and it starts with vertical drilling – important in a formation like the Mississippian Lime, which produces multiple strata with trapped hydrocarbons.

Austex (ASX: AOK) is one company taking on its own unique approach with improved vertical drilling efforts. Most companies use data from old vertical wells to delineate acreage for drilling, but Austex is incorporating a new program of vertical drills that is looking promising. Once a high producing area is found, according to OilPrice.com, clusters of vertical wells can be drilled at 20 to 40 acre spacing.

Austex is a small company without the necessary capital to drill in large numbers, but if it keeps turning up solid findings, its 5,500 acres – known as the Snake River Project – could incorporate its new drilling program.

Petro River Oil (OTC: PTRC) is another one to look out for. It's working the same area as Austex and helped to develop and design Austex’ vertical program.

The bad press that Kansas oil and its Mississippian Lime has received comes from companies that started strong, only to sputter out.

And sure, Shell’s announcement was a mighty blow to any progress happening in Kansas. But the oil that has been abandoned is still down there, and the technology to recover it is catching on.

The only question now is: who’s going to go down there and get it?

 

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