The Mississippi limestone, a geologic formation that stretches beneath northern Oklahoma and southern Kansas, is a stirring prospect for producers looking for large amounts of oil and low well costs. The play’s story is an undeniable tale of rejuvenation and renewal, with the advent of horizontal drilling, as the once-staid area has become a hub of activity.

Vertical wells have fallen to the wayside, as fracture treatment of the formation during completion, in addition to the horizontal placement of the well bore, has added significant conduits for production. Thus far, producers are seeing higher oil content, but say that gas output has been notable.

Midstreamers, taking note of the play’s potential, are making sure to meet producer demand for take-away and processing capacity. In fact, SemGroup Corp. recently announced plans to build a new natural gas processing plant in the Mississippi zone, one that will handle up to 60 million cubic feet (MMcf) per day. The plant will include cryogenic technology for natural gas liquids extraction and enhanced ethane recovery.

Major players in the area, such as Chaparral Energy Inc. and Eagle Energy Company of Oklahoma LLC, are eager to discuss the potential of the play, and where the midstream industry should keep an eye out for future developments.

Eagle Energy additions

Eagle Energy Company of Oklahoma LLC has much to say about the Mississippi Lime. The Tulsa-based company has grown its operations through the virtue of staying true to the play, and its strategy has paid off handsomely with the use of horizontal wells. As of late, the two-year old company now owns more than 80,000 net acres. The company made nine acquisitions during first-quarter 2010, which were supplemented by an aggressive leasing throughout that year.

Early on, Eagle determined that the Mississippi Lime was a straightforward environment. The company had a unique situation in that it originally obtained the Mississippi property by buying a large Hunton de-watering field in which it was working a consolidation play.

“We made a decision to risk some capital, with the blessing of our equity backers, Riverstone Holdings LLC, and reentered a couple of the Hunton wells to test our thesis in the Mississippi. It turned out to be a good bet.” – Steve Antry, chief executive, Eagle Energy Company of Oklahoma LLC

According to Steve Antry, chief executive, “Eagle made a total of nine acquisitions to consolidate some of the Hunton players, and then some of the data points for the Mississippi popped up and started being made public from Sandridge Energy and some of the other early entrants into the play. The Mississippi Lime is up-hole from the Hunton, so we made a decision to risk some capital, with the blessing of our equity backers, Riverstone Holdings LLC, and reentered a couple of the Hunton wells to test our thesis in the Mississippi. It turned out to be a good bet.”

The challenge in the area, as a result of such rapid growth, is that drill services have been, and remain to be, hard to find. Pipeline capacity has also been an issue lately, according to Antry.

“SemGas, a subsidiary of SemGroup Corp., is our lone gas purchaser, and they transport our liquids as well. It’s a great relationship. We originally estimated to them, when we were starting to drill the Mississippi formation, that the wells were going to come in about 800 barrels of oil equivalent (BOE) to 1 million BOE per well,” he says.

In fact, according to Antry, the norm has actually been closer to 3 million BOE per day to 5 million BOE per day. “That’s a high-class problem to have. The midstream operators have been fairly good at keeping ahead of us. But I will say they’ve found it challenging,” he says.

However, SemGas, Antry notes, has been on the ball when it comes to building transmission lines and setting compressors to increase capacity. The company currently owns about 850 miles of gathering pipelines in Kansas, Oklahoma and Texas. Originally, the company had two plants that were already in place—the Hopeton plant, and the Nash plant.

“They upgraded the Hopeton plant to a cryogenic plant, which went online in August. They’re also upgrading the Nash plant to get it up to 60 MMcf per day of capacity. That will be done in the second quarter of next year. Both plants together will have a capacity of about 120 MMcf per day. They’ve tied both plants together with a high-pressure 8-inch line, so the field can flow to wherever they have capacity. We’ll probably be taking most of that capacity. I will say, this has turned into one of SemGas’s best properties, and they’ve been a really great midstream partners for us,” he says.

According to Antry, one of the biggest challenges of the Mississippi Lime was for Eagle Energy’s customers and purchasers to adjust to the volumes that it experienced. “These Mississippi wells are just so much stronger than the Hunton wells that it’s not even a close race. One great thing for us about SemGas is that they will lay pipeline to our wells before we’ve fraced them,” notes Antry. This allows Eagle to not only frac the wells, but to flow immediately into the line, with no downtime in between.

Steve Antry, chief executive of Eagle Energy of Oklahoma LLC, tours a tank battery that receives oil from the company’s Lohmann 1H-20 horizontal Mississippi Lime well in Woods County. Source: Hart Energy

However, as the rig count continues to climb, Antry feels that there will be a definite need for more midstream infrastructure as more companies get into the play. “I think it’s going to be hard to keep up, on the midstream front, with the kind of drilling that this area is going to see,” he cautions.

“We joke around that this is real and it’s spectacular. There’s almost this feeling of disbelief, about how good some of these wells are. One well, named the Longhurst 3H-34, which is the biggest well in the trend, came in at a little over 2,000 barrels (bbl.) per day of oil, over 5 MMcf per day of gas and we were venting another 5 MMcf per day in gas. It has been producing for about 80 days, and it’s paid out twice. It’s just the biggest well in the trend. These reservoirs have a lot of strength,” he says.

The flow stream looks positive too. Eagle’s well production has thus far generated about 65% oil and liquids, and the remaining production is gas. “There’s actually a pretty high liquids content. I think it is 55 bbl. per million of liquids, and that really surprised us. It was way above what we projected. To me, the take-away and the production on these wells are on par with any play in the country, but at about half the cost,” he says.

Now, Eagle is experiencing an 80% to 100% rate of return on these wells, due to the fact that the start-up cost is only about $3.5 million. “Who knew that horizontal drilling would find that there was so much oil and gas left in an area with 17,000 vertical wells that have been drilling there since the 1950s,” Antry jokes. “I think that with the vastness of this reservoir and the success that everybody’s having, this will be exploited economically for years to come.”

Chaparral moves forward

Privately held, Oklahoma City-based, Chaparral Energy Inc. is also pleased with its progress in the Mississippi Lime. In November, it entered into an exclusive oil and gas concession agreement, named the Wildhorse Concession Agreement, with the Osage Minerals Council to lease and potentially develop oil and gas rights on 138,000 acres in Osage County, Oklahoma, in addition to acreage it has already been developing.

According to Earl Reynolds, chief operating officer for Chaparral, the greatest challenge thus far has been dealing with the gas. “Gas infrastructure has been a hurdle in the western part of the play. We’ve drilled five wells in the western part thus far, and gas infrastructure has been the biggest issue.”

“We get about 60% of oil out of our flow stream, and you see gas rates of 2 MMcf to 4 MMcf per day out of the oil wells. So you have to deal with take-away capability associated with that.” – Earl Reynolds, chief operating officer, Chaparral Energy Inc.

In fact, in the western part of the play, Chaparral has seen fairly high amounts coming out of the wells. “We get about 60% of oil out of our flow stream, and you see gas rates of 2 MMcf to 4 MMcf per day out of the oil wells. So you have to deal with take-away capability associated with that.”

The play’s characteristics are different in the eastern area of the play. “If you go east, it’s a less mature region from an industry activity standpoint” explains Reynolds. “The industry has been focused on the western in Woods, Alfalfa and Grant counties. In the eastern part of the play, Chaparral has drilled three wells and one disposal well. Unfortunately, the same kinds of issues exist there in terms of gas infrastructure.”

In the eastern section of the play, the Mississippi formation is found between 2,800 and 3,500 feet, which is shallower than on the western side of the play where depths range between 4,500 to 6,500 feet. Drilling activity in the eastern portion, which is defined as east of the Nemaha Ridge, has been increasing. Results to date have been encouraging, he says.

A rig crewman attaches visual markers onto Dan D. Drilling Rig No. 7 anchors, while drilling Eagle Energy’s horizontal Reed 1H-10. Source: Hart Energy

Yet, production areas need more infrastructure as the play continues to ramp up. “In Osage county in particular, we’ve got fairly decent infrastructure for gas take-away, but I wouldn’t say it’s robust by any means. The good news for the eastern part is that there is not as much gas to deal with, and about 80% of the flow stream is oil versus 50% to 60% in the flow stream on the western part.”

Currently, Chaparral uses Scissor Tail Energy LLC and Superior Pipeline Co. in this region to get production to market, and midstream infrastructure has not caused any bottleneck issues thus far. However, cautions Reynolds, it could be an issue in the future, should production continue to increase at its current pace.

“We haven’t run into big problems there. But the area is still ramping up. We have our own rigs and that has allowed us to drill without any issues. Our projection in 2012 is that we will be able to manage that effectively. However, if we see a major uptick in the east, in gas, we may run into capacity issues further down the line. We are looking at how to manage those bottlenecks.”

To address the increase in oil capacity demand, Plains All American Pipeline LP recently announced plans to convert an existing Oklahoma liquefied petroleum gas pipeline into crude oil service, a project it said will provide needed capacity for growing crude oil production in the region. Others are undertaking similar projects to keep up with producers like Chaparral.

Plains, which transports, stores and sells oil and natural gas, intends the pipeline to provide an initial crude oil throughput capacity of 12,000 barrels per day by January 2012, and will expand it to 25,000 bbl. per day by July.

A stand of drillpipe is prepared for an Eagle Energy horizontal well in the western region of the play. Source: Hart Energy

For now, other options for take-away have been the go-to solution for Chaparral. According to Reynolds, “Sometimes we will use an oil pipeline if we have it available. But if it’s not, we truck out the oil that we produce. However, there is enough infrastructure in the area that we are able to tie-in the wells in a fairly quick manner.”

Overall, the midstream and upstream aspects of the Mississippi Lime are a siren call to producers looking for low well costs in a shallow play with a high output of oil.

“I think the story of the Mississippi Lime is pretty compelling. It has several things going for it, in that the play is comparatively shallow, so you can drill the wells faster. And there is the high propensity of oil. So we believe, because of those attributes, that this will be a very economic play for us. You are going to see Chaparral invest more capital there,” Reynolds says.

Time will tell what ultimate promise the Mississippi Lime formation holds. However, players who are the quickest on their feet are sure to see maximum rewards. With the advent of horizontal drilling, old plays are learning new tricks.