Granite Wash: Reinvented by Shale Technology

The Granite Wash play illustrates that the “shale oil” revolution with the combination of horizontal drilling and multi-stage fracturing has reached beyond shale. It demonstrates the impact that these combined technologies can have on sandstone and limestone-themed formations in addition to shale. The Granite Wash lies across the eastern side of the Texas panhandle and western Oklahoma border, southwest of the Mississippian Lime play that extends along the Oklahoma and Kansas border. The Granite Wash, which has an average of about 70 rigs active for 2013 according to Baker Hughes, is seeing activity only a little lower than the Mississippian’s 80 rig average.  Both plays have been contributing to the recent strong increases in Oklahoma oil and natural gas production, as shown in the chart. Yet each play is unique in more ways than the two are similar.

The Granite Wash is another case of an “old play made new” by advances in technology, additional evidence that the horizontal drilling, multi-stage fracturing revolution is targeting more than shale formations.

Geology

While “hodgepodge” is hardly a technical term, it may set the right mental framework for understanding the Granite Wash’s long and complex geologic history. Ancient mountains were uplifted about 300 million years ago in the Pennsylvanian Period. Erosion during the Permian Period deposited sand, gravel, and silt along the mountains’ flanks in shifting and varied accumulations that were later buried along with the remains of the mountains. These deposits were transformed over time into sandstones and a great variety of related sedimentary rocks, only to be uplifted again later.

The result is a unique geology with wedges of discontinuous, inter-bedded rock types (see cross section below from John Mitchell “Horizontal Drilling of Deep Granite Wash Reservoirs, Anadarko Basin, Oklahoma and Texas” in Shale Shaker, Oklahoma City Geological Society, Sept. – Oct. 2011, pg. 134) that are highly variable both vertically and horizontally. Some experts put the number of sections (changes in rock type) as high as 70 in some locations. No wonder then, that the Granite Wash can vary markedly from place to place in porosity (the space available for oil or natural gas), and in permeability (natural channels enabling the oil and natural gas to flow toward wells). This variability, in turn, helps explain the dissimilar locational results for this play.

The Granite Wash is typically found at depths from about 7,000 to 15,000 feet, with a thickness of about 3,000 feet, but containing a great many differing zones, providing multiple targets for horizontal drilling. The imprecise geographic area defined by the play differs depending on who defines it, but the heaviest rig activity is currently centered near the Texas and Oklahoma border. The oil and natural gas ratio can vary greatly, from 30 percent oil or less for some prospects to 80 percent and above for others. Another play-specific and locational factor is the relatively liquids-rich nature of the natural gas. Especially for natural gas prone targets, current relative prices of oil versus natural gas have shifted the focus of project economics to liquids potential of crude, condensate, and natural gas liquids (NGLs).

History

Drilling in this part of Texas and Oklahoma dates back to the 1920s. Two significant discovery wells in the Granite Wash were drilled in 1956, with oil-producing wells in Hutchison and Roberts County, Texas, on the northwestern side of the current region identified with the play. In subsequent years, natural gas gained increasing attention, with production of both oil and gas rising through the 1970s and 1980s before leveling off and gradually slipping in the 1990s. Companies often targeted the more permeable Morrow and Atoka Wash, which are situated below the Granite Wash. Oil and natural gas production began rising again in the early 2000s, as higher natural gas prices encouraged more tight gas development.

By the time the comingling of horizontal drilling and multi-stage fracturing began to be intensively deployed in the region around 2007, there were already thousands of traditional, vertical producing wells.  The application of these technologies to the Granite Wash resulted in strong initial production rates, demonstrating that this play was far from “washed up.” According to IHS, estimated ultimate recovery of horizontal wells increased to eight times that of the typical vertical well. The sandier reservoirs resulted in prolific wells with greater predictability and repeatability than traditional wells.

While the opportunities of the Granite Wash provided by its many multiple, stacked plays have made it an attractive target, the complex geology and varied results have provided a challenge to solid geologic analysis and to skillful well design. The stacked zones support widespread stacked development, meaning that a surface location may have several horizontal targets requiring a well for each section. This scenario effectively multiplies the drilling activity required to fully develop the play. Nevertheless, by 2011, according to Baker Hughes data, 94 percent of wells in the Granite Wash were horizontally drilled. More recently, the percentage has risen to 98 percent, with 20 million cubic feet per day wells not being atypical, according to IHS. Multiple zones at varying depths have drawn interest, including the Tonkawa on the shallower end, tending to be liquids rich, down through the Lansing, Cleveland, and others, to the Granite Wash sections themselves, and on to the deeper, natural gas-prone Atoka. The Hogshooter formation (admittedly among the more colorful terms in the region and named reportedly after a Cherokee family and/or local Indians who once shot wild hogs along Hogshooter Creek in Washington County, OK) garnered unusual interest in 2010 when wells in this zone yielded remarkable initial production rates of more than 2,000 “barrels of oil equivalent” per day.  Furthermore, Hogshooter wells tended to have the advantage of a typical oil to gas ratio of 70 to 80 percent and above, versus a more typical 30 percent or so in other parts of the play. Activity has also spread to the Dalhart Basin, west of the Granite Wash focus.

The current relative prices of oil versus natural gas translate into the prospect of better returns for wells with a higher oil to gas ratio, and for wells with “wetter” natural gas. More specifically, recent crude oil prices, on a price per million BTU basis, amount to four or five times as much as those per million BTU for natural gas. Depending on their mix and the degree of ethane rejection (that is, leaving lower-priced ethane in the natural gas stream), extracted NGLs might be worth twice as much per million BTU as natural gas. The more valuable the NGLs relative to natural gas, the more worthwhile the cost of extracting them. The first accompanying pie chart, for a hypothetical well with 30 percent crude oil, 50 percent natural gas, and a relatively rich 20 percent NGLs, is on the basis of barrels of oil equivalent based on BTU content.  The second pie chart values these components at approximate recent prices. It is only intended to give a notional idea of how recent market prices for these products might affect prospective revenues from a project (and does not account for NGLs extraction costs, etc.). Nevertheless, it strongly suggests that recent large differences in prices among crude oil, natural gas, and NGL, make a significant difference between viewing a well’s results on a “barrels of oil equivalent” basis or on a potential revenue basis. Thus, even for wells for which natural gas has the largest BTU component, liquids can remain a major driving force in evaluating project economics and defining the “core” of a play.

According to Baker Hughes data, rig activity in the Granite Wash has averaged close to 70 rigs for 2013. Although down from last year’s average of 82 rigs and 2011’s average of 92, looking at rig activity alone does not account for the increase in wells drilled per rig, increasingly a more powerful data point as rig technology evolves. As the chart shows, improvements in rig efficiency (along with a trend away from the deepest wells) have led to each rig drilling more wells, on average, and have enabled the number of well completions to remain roughly the same.

With the growing production of all fuel types, and the high liquid content of Granite Wash natural gas, the value of additional infrastructure has been apparent.  This includes the need for facilities to process and fractionate the natural gas and NGLs, as well as pipelines and other infrastructure to get them to market.

As mentioned in the previous article, Declaration of Independents is beginning to look at some of the key plays that include natural gas and natural gas liquids production in addition to oil. As natural gas supply and demand dynamics have transformed, so have the production portfolios of various plays in response to changes in the marketplace and a better understanding of geological formations across the country. Terms such as unconventional and conventional are perhaps becoming less important in the wake of both technological and market forces that continue to reinvigorate plays around the country and the world.

The Granite Wash remains among the top five or six horizontal oil plays in rig activity (along with the Bakken, Eagle Ford, the Permian, the Mississippian Lime, and the Niobrara).

The Granite Wash demonstrates once more that newer technologies have made an old play new again, bringing on additional supplies of crude oil, NGLs, and natural gas from a region that has been explored and produced for nearly a century. And, as with other mixed or combo plays, the Granite Wash shows that horizontal drilling and multi-stage hydraulic fracturing are revolutionizing not only shale plays, but plays in other types of tight geologic formations.

IPAA would like to thank the following contributors: Steve Trammel, Kevin Hartl, Kirby Wells, Bill Page, William Schneider and Brian Lidsky. Special thanks to the Oklahoma City Geological Society and the Shale Shaker for the stratigraphic cross section picture.

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