Black gold making Texas richer
Black gold making Texas richer

A short drive from Cuero, a small town in southern Texas that proudly describes itself as the turkey capital of the world, the Muir family own land on which cattle graze.

This has always been good grazing land, in the DeWitt County about an hour's helicopter flight west of Houston, although a long dry spell means vegetation is no longer as lush as it once was.

Neither, for that matter, is the Muir family's dependence on turning a dollar from agriculture.

As luck would have it, the Muir family's farm sits on some of the most lucrative shales in the Eagle Ford region of southern Texas and has attracted the attention of BHP Billiton, the Melbourne-based resources giant which is hoping to make its name as one of onshore America's biggest oil producers.

On a well pad about 15km from Cuero (population 6841), BHP and its contractor Helmerich & Payne are busy drilling the first of what are likely to be four horizontal wells to tap into the Black Hawk section of the Eagle Ford shale, a 640km long and 80km wide sedimentary band of rock buried about 1.5km underground. Once the well has reached its vertical depth, horizontal drilling begins for distances of up to another 1km to access as much of the shale as possible.

On BHP estimates, the Eagle Ford shale is up to 90m thick and particularly rich in oil. It is why BHP is spending billions of dollars to increase production here, in what petroleum division boss Mike Yeager refers to as the world's biggest oil field development, from 60,000 barrels a day to more than 300,000bpd by 2016.

These are not cheap wells, even before factoring in royalties to land owners like the Muirs that range from 12.5 per cent to 25 per cent of oil and gas revenues.

Under Texas' 146-year old constitution, the state has "released to owners of the soil all mines and mineral substance therein". It can prove a boon for landowners such as the Muirs - BHP plans to drill 12 wells on the family's property - and has transformed what Mr Yeager refers to as some families who up until the shale revolution "all they had was one cow".

Texas' constitution also all but guarantees there is minimal land owner opposition to incursions by the likes of BHP and their drillers because the potential for reward is so great. Land owners also often dictate the exact location where rigs are to be set up, even if it means BHP has to double-up or redirect the drill bit to make sure it still hits the shales. Any concern about potential groundwater pollution does not seem to have impeded drilling activity. Not surprisingly BHP, in conjunction with its main contractors H&P and Schlumberger, is busy working on ways to reduce the average $US9 million ($8.7 million) cost of each well, which includes at least $US4 million for the fraccing.

Particular focus is on drilling multiple wells per drill pad - BHP is planning to drill up to 12 wells from three pads on the Muir property - as well as simultaneous fraccing of multiple wells. There is also a push to reduce drill and fraccing times - Schlumberger had more than a dozen specialist trucks on site at BHP's Big Oak site for a process that takes about a fortnight, depending on the number of frac stages involved - and efforts to reduce the amount of water used during fraccing and recycle as much of it as possible. Each well needs about 100,000 barrels of water for the fraccing process, and it costs BHP as much as $US10/b to cart away unwanted used water.

BHP is spending much of its 3500-well shale push over the next two years in the liquids-rich Eagle Ford and Permian (also in Texas) shales. Its investment in shale this year alone is likely to be $US6 billion.

BHP's drilling on the Muir property alone is worth more than $US100 million and, based on average Eagle Ford peak flow rates of 300 to 600 barrels per well per day and a 50 per cent liquids content, the Muirs could be eyeing annual royalty cheques of between $US20 million and $US30 million.

Not surprisingly DeWitt county judge Daryl Fowler is full of praise for shale chasers such as BHP because of the employment opportunities and well as broader economic spin-offs for his county's 20,000-strong flock. Like other parts of Texas, his constituents have a rich history in oil and gas and many have welcomed the arrival of the shale game as an opportunity to quit employment on the rigs in the Gulf of Mexico for land-based work, often closer to home.

There is also a lucrative per-well contribution to DeWitt County coffers instigated by Petrohawk Energy, the Texas company that BHP took over last year as part of its $US20 billion US shale strategy.

Judge Fowler, however, is less than pleased with law makers in the Texan capital of Austin who have enjoyed the financial boom generated by the shale revolution and collected more than $US70 million in so-called severance tax (akin to a royalty) from operations in the DeWitt county in the first six months of this year alone. Hardly any of the tax is returned to the counties.

The conditions of DeWitt's roads, meanwhile, remain weak bordering on dangerous because of the increased traffic flow as the BHP, H&P and Schlumberger fleets move from one drill site to another. It is an issue, Judge Fowler says, that occupies much of his time when talking with the powers in Austin.

BHP's investment in shale this year alone is likely to be $US6 billion. <div class="endnote">


The West Australian

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