UNION PACIFIC PRESSES AUSTIN CHALK DEVELOPMENT

Charts

Union Pacific Resources Co. (UPRC), Fort Worth, has spudded its 1,000th well in an Austin chalk trend horizontal drilling program in the southern U.S.

UPRC Pres. and Chief Executive Officer Jack L. Messman said the milestone was achieved in the company's most successful exploration and development play of the 1990s. UPRC's program in the 200 It thick, 25 mile wide upper Cretaceous limestone trend stretching 500 miles across East Central Texas and western Louisiana reflects its strategy of focusing on U.S. prospects.

"We've made an immense commitment to this area in a very short time," Messman said. "Our first 1,000 (horizontal) wells have yielded 220 million bbl of oil equivalent (BOE), of which more than 100 million BOE belong to UPRC."

DRILLING CAMPAIGN

A horizontal technology pioneer, UPRC since drilling its first horizontal well in the chalk in 1987 has spent more than $1.4 billion in the regional play.

Results of that first well, 1 Rudy Loehr in Giddings field of Burleson County, Tex., were slim. Recovery amounted to only two or three times that of a typical vertical chalk well. But the company continued working with horizontal drilling technology.

By yearend 1989, UPRC had completed nine horizontal wells in the trend and was producing on average 6,600 BOE/day.

By yearend 1991, it had drilled more than 200 horizontal Austin chalk wells and was producing an average 38,800 BOE/day net to the company. More important, UPRC was recovering six times the volume of oil and gas commonly produced by vertical wells in the trend. The company also was driving down costs and cutting the time needed to drill a horizontal well and place it on stream.

During 1992-94, UPRC completed more than 200 horizontal wells yearly in the chalk, The company in March 1993 completed its 500th Austin chalk horizontal well, 1 Walther OL Unit in Fayette County, Tex.UPRC's net chalk production by yearend 1994 was averaging 73,306 BOE/day. and in first quarter 1995 the volume rose to 78,200 BOE/clay. That average inched up to 80,900 BOE/clay last April, including 24,100 b/d of oil, 251 MMcfd of gas, and 14,800 b/d of natural gas liquids.

TECHNOLOGY ADVANCES

Amid the flurry of activity, UPRC continually added to its knowledge of the chalk and of horizontal drilling and completion methods.

UPRC learned that in some parts of the trend a thin layer of volcanic ash prevented communication between upper and lower parts of the formation's naturally occurring fractures. In those areas, UPRC began drilling wells with dual horizontal laterals, one into each zone.

"One of our continuing opportunities in these areas of the chalk is to go back into wells that were drilled into only one zone and add the second zone," Messman said. "These redevelopment opportunities are important to our efforts to keep the chalk going."

The company in some parts of the play has driller wells with three horizontal laterals, including one penetrating the Austin chalk and one each into two similar, deeper formations, the Buda and Georgetown.

As its knowledge of the chalk's geology has grown, UPRC has begun drilling horizontally into a still deeper zone in the formation. The deep play's first two wells are producing a combined 48 MMcfd of gas.

UPRC is expanding its regional gas pipeline system to boost transportation capacity to as much as 360 MMcfd.

Messman attributed the success of the new deep play to development in the past year of horizontal drilling tools that can withstand high temperatures.

Effects of the technological advances are apparent in vital statistics of the wells the company is drilling in the trend.

During 1990-92, an average UPRC horizontal well in the Austin chalk had a true vertical depth (TVD) of 9,000 It, measured depth (MD) of 13,000 It, and recovered on average 240,000 BOE at a cost of $7.50/bbl.

In 1993-94, the company's chalk wells averaged 12,000 ft TVD, 16,000 ft MD, and recovered 500,000 BOE at an average cost of $4.50/BOE.

Those averages have increased again this year to 14,000 ft TVD, 22,000 It MD, and average recovery of 1 million BOE at $3/BOE.

UPRC's 1,000th well, 2 Myers Cattle in Brazos County, Tex., fits the latter profile. It is a dual lateral horizontal well with a TVD of 15,000 ft.

In addition, UPRC calculates that technological breakthroughs such as geosteering, improved drilling fluids, dual mud motors, top drive drilling systems, and retrievable whipstocks have trimmed the average cost of horizontal chalk wells to $180/ft from $400/ft in 1989.

"This technology, coupled with our own diligence to reduce costs, permitted us to commercialize 600 drillsites that were uneconomic by 1989 standards," Messman said. "In the next 5 years, we plan to commercialize more than 500 additional wells as a result of continued cost and technology improvements."

KEEPING THE CHALK GOING

With a chalk reserves:production ratio of about 2:1, UPRC's position in the trend fits its definition of "just in time inventory"

"A ratio of two to one is extremely low in the industry, and it is one of the reasons the chalk is economic," Messman said. "You get your money back very quickly,"

It also puts more pressure on producers to keep developing enough reserves to maintain profitability.

UPRC intends to sustain its Austin chalk activity through a combination of leasing of undeveloped acreage and acquisitions of producing leases.

The company in May acquired Gemini Oil & Gas Co.'s Giddings field assets in Lee, Burleson, Fayette, Frio, and Washington counties, Tex. Leases included in the $37.9 million deal hold combined reserves of 7.6 million BOE.

Also in May, UPRC agreed to pay Edco Energy Inc. $10 million for 14 Giddings field wells in Fayette County with combined reserves of 2.2 million BOE net to UPRC.

"The Gemini transaction adds 125 drillsites to our inventory," Messman said. "We plan to drill 42 wells on this property this year alone."

UPRC also plans to reenter 80 wells this year in the chalk, a yearly level of redevelopment it intends to maintain.

With Austin chalk horizontal wells recovering only about 20% of hydrocarbons in place, Messman said it is important to continue thinking of ways to improve recovery and add reserves.

"Improving recovery by just another 10% would add more than 100 million BOE," he said.

Even so, Messman said, advances in horizontal drilling and completion methods have extended the life of the chalk far beyond UPRC's early expectations.

"We have predicted each year that chalk production would peak and start a steep decline the following year," he said. "We have been wrong each time. .... Our 1,000th well is testimony to just how wrong we were and how encouraged we now are about the potential of this area."