Ten years from now 3050% of onshore wells drilled in the U.S. will be horizontal holes, predicts Oryx Energy Co. Chairman Robert Hauptfuhrer.
Oryx has drilled about 15 horizontal wells in the U.S., which it says is more than any other company.
All 12 horizontal holes it has completed in the Austin chalk of South Texas are still producing more than 1,000 b/d-in stark contrast to rapidly depleting vertical holes in the chalk.
Oryx plans to drill about 105 horizontal wells in the U.S. this year, 30 of them wildcats, Hauptfuhrer told a press conference in Washington, D.C. Of this year's wells, 85 will be in the Austin chalk area.
EXPERIENCE COUNTS
Oryx's first horizontal holes cost as much as three times the cost of conventional vertical holes.
Hauptfuhrer said, "Our costs in the chalk now are 50% more than a vertical well but we have three to five or more times the daily production and reserves than a vertical well. That changes the economics a lot.
"We had not expected the increases in flow rates. Flow rates have gone up, drilling costs have come down, and some novel approaches for completion are proving to be very effective."
He said "18-24 months from now we could have 15,000-20,000 b/d incrementally coming out of the chalk that we hadn't expected."
Oryx produces about 100,000 b/d of crude now.
"We have some nice acreage spreads we think are economically attractive if drilled horizontally."
Oryx got its foothold in horizontal drilling through use of Sun Co.'s technology center before Oryx was spun off as an independent company in 1987. It inherited Sun's 150,000 acre lease position in the Austin chalk.
Hauptfuhrer said success with horizontal drilling is due more to experience through trial and error than to developments in hardware, although it could not have occurred without developments in things such as downhole motors, well measurement, and seismic data during the last decade.
"We believe there are 10-15 - maybe as many as 20 - other geological formations in this country that might lend themselves to horizontal drilling," Hauptfuhrer said. "Some will work out and some won't. It depends on geology and the difficulty of drilling. This time a year from now we'll be further along the experience curve as an industry, and we'll have a better idea of the potential. But the experience on the cost side has been so good."
He said horizontal drilling is not a development that will reverse the decline in U.S. oil production, "but given our size, its going to be very significant for us."
DRILLING PLANS
Hauptfuhrer said a basic change in drilling strategy has paid off for Oryx.
It has retreated from the industry's time honored strategy of spreading wildcatting risks by participating in many holes and increasing the odds of sharing in a discovery.
Hauptfuhrer said, "We are participating in fewer gross exploratory wells in 1989 and 1990 than has been our pattern because we are keeping a higher net interest. We are keeping more of it for ourselves.
"We are betting more across the board on our technology. That means we are taking on average a higher net interest in each well because we are confident in the risk assessment we've put on those exploratory wells."
After drilling more than 200 gross exploratory wells in 1988, Oryx drilled only 103 gross holes in 1989 and found more reserves.
Hauptfuhrer predicted, "The U.S. rig count is going to be 15% higher this year, averaging maybe 950-1,000 for the year as a whole. The drilling industry is going to develop some cautious enthusiasm, like the enthusiasm the producing side developed a year earlier."
This year, Oryx will reduce U.S. drilling only 10%, even though it has spent more than $1 billion to acquire some of British Petroleum Co. plc's non-U.S. holdings (OGJ, Jan. 8, p. 25).
Hauptfuhrer added, "We expect to pay down our debt quite rapidly. We'll make inroads of $200-300 million this year alone."
INDEPENDENT STATUS
Oryx continues to lobby Congress for independent producer status, for which it became eligible after it was spun off from Sun.
"It's an incredible quirk that the largest independent is not an independent in the eyes of the Internal Revenue Service," Hauptfuhrer said.
Independent status would make Oryx eligible for percentage depletion on its first 1,000 b/d of production. But it produces 225,000 b/d on an equivalent barrel basis, so only several hundred thousand dollars a year is involved.
More importantly, it would permit Oryx to write off intangible drilling costs in the year the expenditure occurs.
Deferring paying that money to the government would benefit Oryx by $5-10 million, depending on how many wells it drills.
"We live off the wellhead only, just like other independents," Hauptfuhrer said. "We don't have any downstream margins to support our cash flow."
Hauptfuhrer also said Oryx is increasing its U.S. budget more toward gas for supply/demand reasons.
"But although we're attracted to gas domestically, we are not going to be just a gas company."
In non-U.S. operations, 85% of Oryx's current investment is in North Sea, but it doesn't necessarily intend to keep it in that proportion.
"The maturity of North Sea development is about where the U.S. was in 1960," Hauptfuhrer said. "There are lots of reservoirs yet to be found in the North Sea between 100 million and 1 billion equivalent bbl."
But onshore in the U.S., excluding northern Alaska, "I don't believe there will be an oil discovery of a reservoir as much as 100 million bbl, although I hope I'm wrong."
Copyright 1990 Oil & Gas Journal. All Rights Reserved.
