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Fort Worth Company Breathes New Life into an Old Oil Field

Jack Z. Smith
Star - Telegram
November 19, 2010
FORT WORTH -- Approach Resources, a modest-size oil and gas producer, is placing a $100 million bet on the storied Permian Basin of West Texas.

The Fort Worth company says "substantially all" of its $100 million capital budget for 2011 will go toward drilling new wells in the hydrocarbon-rich region that has supplied America with oil and natural gas for nearly 90 years.

Approach isn't alone in its enthusiasm for the Permian, an ancient seabed beneath all or part of several dozen counties in West Texas and southeastern New Mexico. It still accounts for about 65 percent of the crude oil produced in Texas, the top oil-producing state.

The Permian Basin is undergoing a major revival. Technological advances have boosted oil production, while weak natural gas prices have sent energy producers scurrying there in search of more attractively priced oil and natural gas liquids.
More midsize and large producers are plowing money into the Permian, through acquisitions of oil and gas properties costing hundreds of millions of dollars. Well-known companies such as Apache Corp., Pioneer Natural Resources, Devon Energy and Chesapeake Energy are among the players there.

Lease bonuses for mineral rights owners, once $150 to $200 an acre, are now topping $10,000 an acre in choice drilling locations, longtime Midland oilman Jim Henry said.

"The Permian Basin is hotter now than when oil was $140" a barrel, said Ben Shepperd, president of the Permian Basin Petroleum Association. "It may be hotter now than it has ever been."

Oil hit a record $147.27 a barrel on July 11, 2008, only to make a startling plunge below $40 before the year ended. Prices rebounded somewhat in 2009 and have generally stayed in what the industry regards as a healthy, stable range of $70 to $85 for more than a year.

Low jobless rate, high rig count

That's a price that offers plenty of incentive for robust activity in a low-cost drilling environment such as the Permian, where a vast energy infrastructure and capable work force are already in place. Oil-reliant Midland posted the lowest unemployment rate among Texas metropolitan areas in October at 5.1 percent.

The Permian was already enjoying a drilling resurgence in 2007 and 2008 as oil prices soared. There was some retrenchment in 2009, but activity has jumped dramatically this year.

On Friday, 284 rigs were drilling -- primarily for oil and natural gas liquids -- in a 55-county area of Texas that includes the Permian Basin, according to Baker Hughes. That's more than double the average of 133 active rigs for November 2009.

'Wolfberry' is hot

In recent years, a newly coined buzz word, the "Wolfberry," has come to symbolize the Permian's resurgence.

Wolfberry refers to the Spraberry Trend, from which there has been substantial Permian oil production for decades, and the Wolfcamp, an ill-regarded formation below the Spraberry that had long disappointed energy companies. As veteran Midland oilman and former gubernatorial candidate Clayton Williams put it, the Wolfcamp had a reputation as "damn sorry rock."

Such was the Wolfcamp's image as a loser.

But that was before Texas oilman George Mitchell, sometimes dubbed the father of North Texas' Barnett Shale drilling boom, pioneered use of a "slick water" fracturing technique to coax more oil and gas from dense rock formations. It was before a wave of new 3-D seismic data helped Permian producers pinpoint how and where to poke holes in the Wolfcamp; before Jim Henry's Midland-based Henry Petroleum began eyeing the formation in earnest to see whether it might be a diamond in the rough.

Employing the slick-water technique, which uses friction-reducing chemicals to allow water to push into the formation more easily, Henry began drilling wells that produced several times the rate of typical Permian wells. Suddenly, producers could tap into two "pay zones," the Spraberry and Wolfcamp, recovering considerably more petroleum and amplifying their profits.

"A lot of these Wolfberry wells will come on initially at maybe 150 barrels" a day, Shepperd said. The wells may then taper off to 75 to 100 barrels, but he called that "excellent" compared with older Permian wells yielding 10 barrels.

Approach's approach

Fort Worth's Approach is drilling what are essentially Wolfberry wells, CEO Ross Craft said. But instead of calling them Wolfberry, Approach calls them "Wolffork" wells, because they will tap the Clear Fork (similar to the Spraberry) and Wolfcamp formations in Crockett County, south of Midland. Approach has drilled 500 wells in the area in recent years, but previously had drilled straight through the Clear Fork and Wolfcamp to tap into the deeper Canyon Sands and Ellenberger formations.
"It's a stacked pay. You've got lots of zones out there," said Steven Smart, Approach's chief financial officer.

With its new strategy, Craft said, the company plans to produce oil, natural gas and natural gas liquids from multiple formations, potentially achieving "a two- to three-year payout" for the cost of the wells. Approach expects to recover about 60 percent oil and natural gas liquids, and 40 percent natural gas from the Wolffork wells, Craft said.

Upcoming program

Approach's ambitious 2011 plans call for drilling a net seven horizontal wells targeting the Wolfcamp. ( Net refers to a company's stake in a drilling program that may be funded by multiple partners. Two wells in which a company has a one-half stake, for example, would be one net well.)

Approach also plans 19 net vertical wells tapping the Clear Fork, Wolfcamp and Canyon Sands, as well as 16 net vertical wells that first will target the deep Canyon Sands, then be completed again in the Clear Fork and Wolfcamp formations in 2012.

The company is drilling its first horizontal well in the Cinco Terry Field in Crockett County, but "probably won't have anything to discuss" about it until early next year, Craft said.

Approach hopes to recover the equivalent of 300,000 to 350,000 barrels of oil from each horizontal well over its lifetime, he said.

Craft, a veteran oilman, founded Approach in 2002. The 55-employee company, with 20 staffers at its headquarters near Ridgmar mall, has seen its stock nearly triple in value since mid-July, based in part on its Permian prospects.

 Some producers have already cashed in from the Wolfberry play. Henry Petroleum, credited with unlocking the Wolfcamp's code, sold a big chunk of its assets to Concho Resources for $560 million.

Henry, 76, the company's leader and a 50-year industry veteran, has since formed Henry Resources and is now drilling four Wolfberry wells.

"In the Wolfberry alone, there's probably at least 10 years of drilling left just to drill up" acreage already leased, Henry said, "so we'll be drilling for a long time to come."
He expects the industry to make more technology gains, with the result that "we'll figure out how to get more oil out."

"I think the Permian has an extremely good future," he said.