Rogersville Shale Tests Shrouded in Secrecy as Oil/Gas Rush Begins
Rogersville Shale Tests
Shrouded in Secrecy as Oil/Gas
Rush Begins
Jamison Cocklin
July 24, 2015
Dozens of oil and natural gas plays in the Appalachian Basin have
helped to define the nation's fossil fuel production since the 19th
century, but unconventional drilling technology now finds operators
searching somewhat secretly underneath it for more reserves.
Little is known about it. But a deep sub-basin, appropriately described
as near-basement rock, known as the Rome Trough could contain the
kind of source rock that has sparked an oil and gas renaissance in
Appalachia over the last decade. It's a horizon that some believe could
be comparable to the Marcellus and Utica shales.
The Rogersville Shale is one of six formations in the Conasauga
Group, which also includes two other shales. There's been limited
production from the group south of Kentucky, but the organic-rich
Rogersville is thought to be isolated and confined to Kentucky and
West Virginia. At a depth of roughly 9,000-10,000 feet in Kentucky,
and 12,000-14,000 feet in West Virginia, the formation is essentially
no deeper than some Utica wells that have been drilled. It's not an
inconceivable target.
With a thickness of up to 1,100 feet in Kentucky, geologists don't
exactly know yet where the best zones are located. The question
remains how much of that interval is actually good quality reservoir
rock.
Operators in both states have set out to answer the question.
Data obtained by NGI's Shale Daily clearly demonstrates that a land
grab is under way in Eastern Kentucky, and interviews support
anecdotal evidence that a similar trend is ongoing in Southwest West
Virginia (see Shale Daily, June 30). Cabot Oil & Gas Corp., Cimarex
Energy Co., EQT Corp. and what could be up to four other unknown
operators are clandestinely trying to learn more about the Rogersville
with exploratory wells and stratigraphic tests, state records show.
Play Making
Denver-based Cimarex Energy, a company that primarily operates in
the Permian Basin and the Midcontinent, has thus far been a pioneer
in the play, according to interviews and documents filed in Kentucky.
Through its subsidiary, Bruin Exploration LLC, the company has
drilled a vertical test well, the Sylvia Young, to the Rogersville in
Lawrence County, KY. That well, according to state records, was first
permitted as a stratigraphic test in October 2013, which under state
regulations shields the company and permit details for proprietary
reasons. Four months later, the well was permitted for oil and gas
production. When it was drilled last year, the company was able to
request a year of confidentiality before a completions report could be
released by the state, said head of the Energy and Minerals Section at
the Kentucky Geological Survey (KGS) David Harris.
That report, however, is expected to be released on Aug. 20. It would
include initial flow and production rates from the test well. But more
importantly, it would mark the first substantial modern data from the
Rogersville, and it could serve as an early indication of the formation's
potential as a viable oil and gas play.
"There's been this little strategy going on in Kentucky where
companies are permitting the wells as stratigraphic test permits,"
Harris said. "It's purely research to gather geologic information. That's
what happened with the [Sylvia Young] well; it was permitted as a
stratigraphic test and [Cimarex] then applied for an oil and gas
permit."
EQT, which established affiliate Horizontal Technology Energy Co.
LLC to prospect in the Rogersville, has also drilled a horizontal well
to the formation in nearby Johnson County. State records show that
the company was issued a stratigraphic permit last December for that
well and was issued an oil and gas permit in April for production.
Cimarex has also permitted another well farther south in Lawrence
County.
Another oil and gas production permit is expected to be issued in
Kentucky by the end of July, at which point details would become
available about the operator and location.
In West Virginia, Cabot has drilled a vertical test well to the
Rogersville in Putnam County, said West Virginia Oil and Natural Gas
Association Executive Director Corky DeMarco. West Virginia
Department of Environmental Protection spokeswoman Kelley
Gillenwater confirmed that Cabot is the only company in the state
with a known Rogersville permit. DeMarco added that the company
has been actively leasing land in the southwestern part of the state.
During a second quarter earnings call with financial analysts, Cabot
CEO Dan Dinges said the company has nearly one million acres in
West Virginia. Although he didn’t provide specifics about any
particular formation, he added that the company has ongoing
exploration efforts south of Wood County, WV, in the western part of
the state looking at a “deeper section” there.
“We’re usually cautious when it comes to discussing exploration
efforts...We have a couple areas that we’re continuing to look at that
we think have exploratory opportunity anyway,” Dinges said. “...We
have enough reason to believe that it merits further capital at some
time.”
In Kentucky, there are four anonymous stratigraphic test permits that
officials at KGS believe are the beginnings of more Rogersville
production wells. All those test permits were issued earlier this year.
"We think they're Rogersville tests, but we don't know that for sure,"
Harris said. "They're in Lawrence County. The fact that they're being
permitted as stratigraphic tests suggests [operators] are trying to keep
the information confidential."
Cabot, EQT and Cimarex could not be reached to comment for this
story.
The Rush
While sources agreed that Rogersville development has likely been
impeded by the commodities downturn in recent months, a bevy of
leasing activity since last year suggests that exploration efforts could
accelerate if prices rebound and early tests prove successful.
From January 2014 to June, across a three-county stretch in Eastern
Kentucky, including Magoffin, Johnson and Lawrence counties, 3,863
leases were signed for the Rogersville, according to data compiled by
Wesley Cate, executive vice president of the mineral management
firm Global Natural Resource Management Co. Cate went to local
government offices in all three counties and obtained lease indexes for
the period, plugged them into a database and compiled the statistics.
Generally, the leases are being signed for terms of five years or less,
with 12.5% royalties. Historically, land in the three-county region
fetched $25-50/acre. Cate found that, on average, Rogersville leases
during the period were signed for $150-350/acre. At current rates,
assuming each lease is 50 acres, Cate estimated that nearly $65.5
million could have already been paid in bonuses in the counties.
"Absolutely, what's happened, and I've worked in the state since 2002,
Cimarex came in in 2012 under the radar with [land brokerage
Gulfland Appalachian Energy Inc.] and started the leasing activity in
Lawrence County, but didn't expand into Magoffin until later," Cate
said, characterizing the activity to date as a land grab. "I would not be
surprised if you see the same kind of activity spread into Wolfe, Lee
and Estill counties [to the southwest of Lawrence County]. Just
through the rumor mill, I've heard there's already some leasing activity
in Lee County."
Of the 3,863 leases signed for the Rogersville, 2,127 of them have
been executed in Magoffin County, where Cate's data shows that
leasing activity peaked in March. At the end of June, Gulfland had the
most leases with 1,073; EQT had 400; Cimarex had 378 and land
management company Exterra Resources LLC had 466, among
several other companies. Chesapeake Energy Corp., which already
has reserves in both Kentucky and West Virginia, had 105 Rogersville
leases in the region.
Numerous sources said Chesapeake is either testing or preparing to
test the formation. When asked to confirm its activity in the
Rogersville, a Chesapeake spokesman declined to comment but did
not deny company activity in the play.
The spike in Eastern Kentucky land costs related to the Rogersville is
comparable to what happened in the early days of Ohio's Utica Shale
development. In 2011, Cate, who was working in the area during a
scramble to obtain land on what is now the play's western edge, said
land was going for $125-175/acre. Shortly after that, as the land grab
moved farther east, those prices shot to about $1,500/acre before they
continued going up as the Utica was delineated, he said.
"What I'm seeing in the Rogersville is very similar to what I saw in the
Utica," Cate said. "There's been an uptick in mineral buying in the
Rogersville. For perspective, I used to lease land down here for as low
as $10/acre per year."
DeMarco added that in West Virginia joint ventures, farm-outs and
land deals have been common in the southwest part of the state where
the Rogersville is thought to be viable.
Groundwork
In a 2005 report released by the U.S. Geological Survey (USGS) and
authored in part by EQT and Harris -- who is considered a leading
expert on the formation by many -- researchers set out to find the
hydrocarbon source rock for producing sandstone reservoirs in the
Rome Trough of West Virginia and Kentucky. Their work led them to
conclude that the Rogersville was feeding those reservoirs.
"That was at a time when people really weren't thinking of shales as
reservoir rocks," Harris said of the work that led to the paper, which
started in about 2001. "So, that report sat around for awhile. Then a
company in Denver called Cimarex sort of discovered it and maybe
decided to pursue the Rogersville as a reservoir since we had
documented the organic content. They're the ones that kind of got the
whole play started with the [Sylvia Young] well in Lawrence County."
But the impetus for today's interest in the Rogersville actually
happened decades before. A series of documented wells were drilled
to the Rome Trough in the 1960s and 1970s. In the mid-1960s, the
Inland No. 529 White well drilled in Boyd County, KY -- north of
Lawrence County -- yielded the first commercial oil production from
Cambrian-age rocks in the sub-basin. But it was the former Exxon
Corp., which drilled several deep wells in the Rome Trough at the
time, that revealed more about the Rogersville.
One of those tests, drilled to the Maryville Limestone in the
Conasauga Group in Jackson County, WV, produced natural gas at 6-
9 MMcf/d, according to research included in the USGS paper. That
well would have been north of Cabot's current exploration in Putnam
County, WV. But Exxon also cored the Rogersville with its No. 1
Smith well in Wayne County, WV.
"A lot of this has been sort of developed off of what was seen in that
core, in that old Exxon well," Harris said. "That was the key evidence
that there was organic content and there was also big gas shows when
they drilled through that zone. We have those records and mud logs
that show potential hydrocarbons in the zone."
The Rome Trough is also narrow, extending northeastward into Ohio,
Pennsylvania and southern New York. It remains unclear what it, or
other shales in the Conasauga, could hold for producers north of West
Virginia. Other shales in the group have tested poorly for
hydrocarbons in the region, Harris added
"We're not sure what the difference is with the Rogersville. Why is it
organic-rich and the other shales in that package are not? So, that's
sort of a mystery right now," he said. "The [Rome Trough] gets very
deep in Pennsylvania and New York. We don't have real well-defined
boundaries in those states, and so it's a little speculative exactly where
it is up there."
A Guessing Game
With so few drill bits having gone through the Rogersville, there's no
reliable resource estimate for the shale. Every two years, as part of
work for the Colorado School of Mines' Potential Gas Agency, a
committee of Appalachian experts gathers in Pittsburgh to update
technically recoverable resources for oil and gas plays in the region.
"I've worked for the Potential Gas Committee for the past 20 years,"
said Director of West Virginia University's Appalachian Oil and
Natural Gas Research Consortium Doug Patchen. "We sit down and
evaluate the number for every gas play in the basin, which is more
than 30. For the first time, this year, we looked at the Rogersville. Our
conclusions -- other than a wild guess -- were that you really can't do
much with it at this point."
Right now, Patchen said, the Rogersville resource estimate is "quite
small," adding that there's not enough information to make a good
assessment.
"It's like the Utica, our numbers were small last year compared to June
of this year. We had another year of production to make a better
estimate," he said. "But the Rogersville is of interest, and in two years
we'll likely update those numbers."
USGS geologist Leslie Ruppert said the agency does not currently
have an ongoing assessment of the shale or any personnel with
extensive knowledge of its resources. He pointed to a note from a
retired colleague, Robert Ryder, who helped author the USGS' 2005
report, that said the paper was one of the earliest publications
indicating the Rogersville's potential as a source rock.
Kentucky Oil and Gas Association Executive Director Andrew
McNeill echoed Patchen and said activity in the Rogersville is merely
a matter of speculation at this point. He noted that in his state, where
oil has historically been produced from Mississippian limestone and
gas from Devonian black shale in the east, the Rogersville sits below
an industry stronghold. Although there's no evidence to suggest the
play could be as fruitful as the Utica or Marcellus shales, he said the
state is better positioned than most to handle a potential boom with
infrastructure already in place for the Huron Shale and Berea
Sandstone, among others.
"There would certainly be a need for additional transmission capacity
and gathering if this thing comes online, but we wouldn't be starting
from scratch," he said.
Given the depth of the shale in West Virginia, the industry is betting
that the Rogersville is likely a dry natural gas play there, while
shallower depths in Kentucky are expected to yield both oil and gas.
"I don't know if it can be that big. I guess the potential is there," Harris
said when asked if the Rogersville could one day be as prolific as the
Marcellus or Utica. "A lot of companies are just trying to prove-up
reserves right now and see what's down there. Whether they'll start
full-blown development under this current pricing situation, I don't
know.
"These are expensive wells, and I'm not sure what the economics are
going to be on it. But we're continuing to see a lot of interest."