Two for One, Cross Unit Oil and Gas Well

Oklahoma followed the lead of Montana and North Dakota.  According to industry spokesmen, the high cost of deep horizontal wells, in the neighborhood of 23,000 feet deep, about eight million bucks a pop, make it imperative to look to reduce costs of production and reduce the risk of marginal well.  The deep wells on a square mile unit would normally cost about about sixteen million dollars for two wells on two sections of land.  Cross unit production allows longer lateral lines to exploit the minerals from a neighboring section of land thereby allowing production from a unit twice the normal size.  The typical unit for deep oil and gas wells is one square mile.

With the advent of Cross Unit Production, one well may drain two square miles.  The advantage is cost savings.  Instead of two wells costing sixteen million bucks, the operator will have to spend thirteen million and get the production from a sixteen million dollar investment.  Waste not want not.

WATONGA – There was no ribbon to cut, but on Friday Continental Resources celebrated a unique oil and gas well, the first of its kind in the state.

By Sarah Terry-Cobo The Journal Record

While the technology used to complete the well was not new, the two-mile-deep, two-mile-long well would not have been possible if it weren’t for House Bill 1909, the Shale Reservoir Development Act, passed in April 2011. The bill, authored by state Sen. Cliff Branan, R-Oklahoma City, and state Rep. Mike Jackson, R-Enid, allows an oil drilling pad to be up to 1,280 acres, double the standard size of 640 acres. It also allows a company to drill into another adjacent section.

“It’s about economics,” Branan told The Journal Record, “and keeping up legislatively with the technology out there.”

The risk on a single well is about $8 million, but this legislation effectively allows a company to drill two wells at a cost of $13 million, said Richard Muncrief, senior vice president of operations for Continental. The $3 million in savings can mean the difference between an economic and uneconomic project, he added.

Jeff Cloud, vice president of gas marketing for the company, said the techniques employed at the so-called “cross-unit” oil and gas well are the same used in North Dakota and Montana. Putting two sections together, which in this case doubles the length of the horizontal well bore, is more economical, Cloud said. Longer lateral lines means more production and less impact.

Wind whipped up dust from the gravel on the Toms 1-21 XH site, and green grass in the surrounding fields waved wildly. About five miles southwest of this site sits the Cactus 108, the rig that drilled the Toms well. In its current location, the Cactus is drilling the second cross-unit well, which is scheduled for completion on April 9. This well, called Shorty’s Place 1-2 XH, was drilled to its planned depth of 21,524 feet on Wednesday.

In Oklahoma, horizontal wells are usually one mile in length. In the case of the Toms well, this point is indicated by a bright orange windsock, where dozens of cattle were clumped around it. The two-mile mark had a similar orange windsock, with heavy equipment, pickups and men in hard hats working nearby.

Robert Kennedy, southern region drilling manager, pointed out these items from a tour bus filled with employees, politicians and members of the media.

“The first one gathered cattle and this one gathered some pipeline guys,” he said, as laughter echoed through the tour bus.

For those in the industry, the importance of HB 1909 could not be understated.

“Changes in regulations will help Oklahoma compete with other states,” Muncrief said, “because if we don’t, (Continental) will take those capital dollars to another state.”

Continental also drills in Montana and North Dakota, so states have to compete for the projects.

Later in the afternoon, Continental Resources CEO and Chairman Harold Hamm spoke at Eischen’s Bar in Okarche, praising the work of the Oklahoma corporation commissioners, legislators and fellow industry colleagues for their work to pass HB 1909.

“I know these things can get contentious,” he said. “We were able to do this in a manner that didn’t hurt anyone.”

Citing the production in North Dakota and Montana, Hamm said these new regulations will allow Oklahoma oil and gas production to rise to an entirely different level.

Production at the Toms well is currently about 550 barrels per day, with about 3 billion cubic feet of natural gas, said Kenneth Kerrihard, southern region production manager for the company. This well produces about twice the amount of oil of the Petty 1-17H well, a similar well nearby. In addition, the crude at the Toms well is about 44 to 46 degrees API gravity, the highest-quality crude.

“Everybody in the world wants this kind of crude,” said Cloud.

Corporation Commission Chairwoman Dana Murphy said passing a bill without opposition was like a miracle from God. Collaboration among mineral rights owners, oil and gas operators and regulators was the key to its success, she told The Journal Record.

This entry was posted in Business Law, Oil and Gas Law, Real Estate Law. Bookmark the permalink.

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