The Smaller Basins of America
We here at RarePetro publish monthly summaries on eight of the largest basins, plays, and oil provinces in North America: the Permian, the Eagle Ford, the Bakken, the SCOOP/STACK, California, the Powder River Basin, the Marcellus/Utica, and the DJ Basin. But what about the other plays? There are a number of oil and gas provinces in the United States that are of at least middling significance that deserve study, and that is what this article will attempt to do. The provinces in question are the Gulf of Mexico, the North Slope, the Uinta/Piceance, and the Haynesville.
The Gulf of Mexico
The Gulf of Mexico (or GoM [pronounced “gahwm”] as it is commonly known in the industry) is the dominant offshore play in North America. There is some offshore production in Alaska, there used to be some production off the coast of California, and there is a decent amount of production off of Eastern Canada (Newfoundland and Labrador and Nova Scotia), but GoM vastly eclipses all of them.
The Deepwater Horizon catastrophe in early 2010 caused many operators to reconsider Gulf operations. BP had to dish out $20.8 billion dollars in the settlement and was forced to sponsor $500 million of research thereafter. For all but the biggest oil and gas companies, this represents more than the total market capitalization of the firms (Apache Corp is worth about $10 billion, for reference).
Despite this, the extremely productive wells in the GoM region continue to attract new investment. The slow market in 2019 and then COVID dragged production down, but it has resurged heroically since and continues to be competitive.
The largest producers are the biggest companies. In the GoM, the capital expenditures requisite to bring each project on, the depth of engineering know-how, and the intense regulatory scrutiny lend the basin to the largest corporations. Shell, Chevron, and BP are the largest players, and there are a few offshore pure-players like Talos Energy that continue to bid on blocks and acquire the assets of those who may be looking to exit the area. The geology of the Gulf of Mexico is extremely diverse. Most of the reservoirs are Cenozoic, but there are dozens of reservoirs with various depositional environments. There is some carbonate presence in the deep water areas, there are some unconventional targets (tight sands, etc.), and there are nearer-shore sandstones and other sorts of clastic reservoirs.
The North Slope
Alaska is home to some of the most prolific onshore and near-shore wells in the world. With nearly all of the state’s production on the North Slope (Prudhoe Bay, Kuparuk, and the surrounding fields), the 800-mile, 48-inch Alaska Pipeline was constructed to bring the crude south across the vast wilderness of Alaska to Port Valdez where the crude is then loaded into tankers and shipped abroad.
Alaska has been at the heart of oil and gas news recently, with the much-contested Willow Project of ConocoPhillips causing a tremendous uproar between environmental preservationists and project stakeholders. The project has since been approved, but only a portion of the original slate of wells were rubber-stamped, making the project far less lucrative.
The major oil-bearing reservoir in the Prudhoe Bay field (the largest of the North Slope oilfields) is the Permo-Triassic Ivishak sand/conglomerate. This and several other clastic reservoirs on the North Slope are high-energy, large-particle, well-sorted reservoirs with high permeability, excellent saturation, and tremendous pressure.
Alaska has two predominant operators: ConocoPhillips and Hilcorp (who recently purchased the middle-aged assets of BP on the North Slope. ConocoPhillips has been in Alaska for a long time and is known for its greenfield development abilities and operational competence. Hilcorp specializes in purchasing mid- to late-life assets and revitalizing them, as they have done in Western Wyoming and Louisiana. They are launching several EOR projects in Alaska that promise to add a great number of barrels to Alaska’s declining production.
Uinta/Piceance
The Uinta Basin in Eastern Utah is the oilier side and the Piceance in Western Colorado is the gassier side of the same basin. This basin is not as ancient as the Pennsylvania and Ohio oil patches, but it has been a center of hydrocarbon production for more than a century and is a contemporary of the ‘Old Conventional’ Permian Basin.
The regulatory environment in the Uinta Basin is extremely friendly. This and the overpressured reservoirs and numerous horizontal drilling targets have helped the Uinta Basin to reach its all-time production record. In contrast with many of the other smaller basins in North America, the Uinta is now producing more than ever–something that can be said only for the Permian and a very small number of other oil provinces.
One unique hindrance, though, is the extremely paraffinic nature of the crude that is produced in the Uinta Basin. The pour point (the temperature at which the oil solidifies and can be no longer ‘poured’ from a beaker) is above one hundred degrees for both of the major crude types produced in the region: Uinta Black Wax and Uinta Yellow Wax. This increases lease operating expense (LOE) because it requires heated storage tanks, insulated trucks (it cannot be piped to market), and specialized refineries to process the crude. It sells at a deduct because of the limited number of customers to which it can be sold and because of the difficulty that refineries have in processing such high-pour-point crude.
The major oil reservoirs in the area are the Wasatch, the Mesa Verde, and the Green River formations . These are thick and porous, but rather discontinuous formations. Their heterogeneity can limit recovery factors and volumetric sweep efficiency in secondary and tertiary recovery projects. The Mancos is the predominant gas reservoir in the Piceance side of the basin. It was one of the first tight sand formations ever exploited in the United States and is often drilled with air-drilling and completed with nitrogen in order to prevent formation damage and completion-related liquid loading.
The recent announcement of a rail terminal soon to be built near Vernal, UT will link Uinta Wax to Cushing, OK and other trading centers, which will allow Uinta Wax to be blended with lower pour-point oils to increase the number of refineries that can take the crude which will, in turn, increase the value of the crude. Other technologies and operational procedures have reduced the LOE incident to producing Uinta Wax and are helping to drive the record-high production levels we are presently observing.
Several major operators used to have oily leases in Utah, but nearly all of them have sold out the basin over the years (Chevron, Oxy, Exxon, etc.). Now, Ovintiv is the last “household name” left in the region, and they recently divested their shallow rights, keeping only the deeper horizontal reservoirs. ConocoPhillips and Exxon still have some small gassier assets in Utah, but these are very small parts of their portfolios. At present, most of the development in the Uinta and the Piceance is done by smaller PE-backed firms.
The Haynesville
The Haynesville is the “other” great hydrocarbon basin of Texas. With the Permian being a predominantly oil play (with considerable associated gas), and the Eagle Ford having a strong oil window, the Haynesville receives less press because of its gassier production stream. The Haynesville straddles East Texas and North-West Louisiana, barely dipping into South-West Arkansas. It covers an area of around 9,000 square miles and is second only to the Marcellus in terms of gas in place. The formation trends deeper as one moves south and is between 10,000 and 13,000 feet deep.
In the last year, domestic and international gas prices were elevated due to an unusually cold winter in parts of the United States and the war in Ukraine. As such, there was a resurgence in activity in the Haynesville. Chesapeake, long a collector and discoverer of gassier assets, sold its oily Eagle Ford acreage and doubled-down in the Haynesville to focus once again on gas. Kinder Morgan began a number of large gas-related projects in the area in the same time span, and a number of PE-backed operators launched major gas drilling initiatives.
The Haynesville is producing now more than ever. Operators have become used to ~$3.00/Mscf gas and have built resilient business models to counter those rather abysmal gas commodity prices. As such, 2020 (which did not dramatically affect the already-depressed Henry Hub gas price), did very little to hamper Haynesville production, which has steadily marched upwards since natural gas price bottomed out in 2016.
In the last six months, as has happened throughout the course of the last decade and a half, development in the Permian with its tremendous volumes of associated gas, in addition to the “gassing-out” of the other basins in the US, has caused an enormous glut of gas supply and gas at Henry Hub is trading under $3.00/MMbtu again. With gas storage filling up quickly and with no new LNG terminals set to be completed for the remainder of the year, the Haynesville will likely be slow for the next year. But, as several terminals set to come online next year in the Gulf Coast region, it could have a brighter intermediate-term future.
As was said previously, Chesapeake is one of the largest players in the Haynesville. Medium-sized PE-backed firms account for the majority of Haynesville production. BPX, the US onshore arm of BP, has some operations in the area, as does Exxon, but these are insignificant contributors to the bottom line relative to the PE-backed firms.
