Over the past three years, the Mississippian Shale has captured the attention of E&P companies throughout the world. The play has good economic fundamentals. It’s relatively cheap to drill the wells ($3,000,000) and the play has an “oily” nature. The core area covers roughly 7,000,000 acres and straddles the line between South Central Kansas and North Central Oklahoma. An extension of the play runs from the western side in a diagonal pattern all the way to Nebraska covering 11,000,000 acres.
Coming on Strong
Leasing activity in the region before 2009 was rather sparse. Multiple producing zones at shallower levels kept roughly 20% of the core area held by production (HBP). Towards the end of 2009, Chesapeake Energy began leasing acreage in Woods and Alfalfa Counties, Oklahoma. Shortly thereafter, Sandridge jumped into the play and began leasing large amounts of acreage in Eastern Alfalfa County and Kay County. At the same time, a variety of smaller players entered the arena buying substantial acreage positions and extending the play into Kansas. In 2011, Shell Exploration and Production bought up 35,000 acres in Harper and Sumner, KS. Concurrently, Apache began leasing in the Northern Extension of the play and quietly acquired 580,000 acres.
Overall, Landmen did a good job of keeping lease provisions favorable for the E&P companies. In most Land Grabs, the lease royalty burden will quickly approach 25%. However, in the Mississippi Lime royalties have stayed at 20% or less. In the Northern Extension, it is not uncommon to see 1/8th royalties today. Similarly, average bonus rates have stayed low compared to other shale plays. In 2009, bonus rates ran at around $300.00 per acre. In 2010, they increased to $650.00 per acre. In 2011 and 2012, they increased to $850.00 and $1000.00, respectively. The lease terms are relatively short compared to other plays. Most terms are three years with very few options to extend the lease being granted. In comparison, most leases in the Marcellus, Bakken and Utica plays lock up acreage for at least five years.
Most of the acreage in the play has been already leased. Currently, Sandridge controls over 900,000 acres in the play. Two-thirds of that acreage is located in the Core Region. Chesapeake claims 2,000,000 acres. Apache’s 580,000 acres is located in the Northern Extension. There are also multiple smaller players who have leased fairly sizable acreage positions.
Bird’s Eye View
Here is a quick overview of how things are shaping up for the major players in the Mississippi Lime’s core regions.
Oklahoma
| Alfalfa • Chesapeake – 150,000 acres • Sandridge – 100,000 acres • T. S. Dudley – 20,000 acres • Altex Energy – 15,000 acres • G. H. Land – 15,000 acres • Special Energy – 15,000 acres |
Garfield • Chesapeake – 25,000 acres • Sandridge – 25,000 acres • Altex Energy – 8,000 acres • Echo Energy – 8,000 acres • Rapid Resources – 7,000 acres • Armer & Quillian – 4,000 acres |
| Grant • Sandridge – 150,000 acres • Chesapeake – 40,000 acres • L&B Land – 20,000 acres • G. O. Farms – 13,000 acres • Altex Energy – 12,000 acres • BO-MC Res. – 10,000 acres |
Kay • Range – 35,000 acres • Osage Land – 25,000 acres • Sandridge – 20,000 acres • Turner O&G – 20,000 acres • Chaparral – 10,000 acres |
| Noble • United Land – 40,000 acres • Black Bear – 15,000 acres • Range – 9,000 acres • Beta Land – 8,000 acres • Sandridge – 8,000 acres |
Pawnee • Black Bear – 20,000 acres • Corvus Land – 20,000 acres • Frontier Land – 15,000 acres • Northshore En – 15,000 acres • United Land – 15,000 acres • T. S. Dudley – 12,000 acres |
| Woods • Chesapeake – 400,000 acres • Sandridge – 125,000 acres • Jess Harris – 15,000 acres • Eagle Energy – 12,500 acres • Redland Resources – 10,000 acres |
Kansas
| Barber • Cheyenne Ex – 50,000 acres • Chesapeake – 25,000 acres • Bent Tree – 10,000 acres • Tug Hill – 9,000 acres • HOP Energy – 6,000 acres |
Comanche • Cheyenne Ex – 75,000 acres • Sandridge – 75,000 acres • Chesapeake – 50,000 acres • Reeder En – 15,000 acres |
| Cowley • Sandridge – 25,000 acres • Thunder Res – 12,000 acres |
Harper • Chesapeake – 35,000 acres • Shell – 30,000 acres • Sandridge – 25,000 acres • Woolsey – 20,000 acres • Sullivan Land – 10,000 acres |
| Sumner • Chesapeake – 20,000 acres • Concho Land – 12,000 acres • Sandridge – 10,000 acres • Shell – 5,000 acres |
Sandridge lead the way and began active drilling in the last year. The initial wells are primarily focused in the Core Region. However, some permitting is taking place throughout the Northern Extension. One thing is for sure, based on the number of acres already leased, they are going to be drilling a lot of wells soon.
What do you think? Will activity in the Mississippi Lime continue to grow at this pace, or will industry enthusiasm head in another direction, particularly toward the Cline Shale’s estimated 30 billion barrels of recoverable oil? Please, leave a comment below.
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these southern states were targeted for deeper exploration
over 40 years ago by a Dallas group calling themselves “Geochemical Surveys”…way ahead of their time!
Thanks Len!
Petro River Oil has a 100,000 acre position in Cowley, Butler, Harvey and Marion. Keep an eye on us as we go public and ramp up horizontal development in 2013.
Kyle, I’m James, the editor of the Wireline Blog. Len mentioned to me how you found our post, very cool! I follow y’all on Twitter and saw your tweet hashtagged #MississippiLime the day we posted this. Sorry we didn’t catch y’all this time. Will definitely keep you top of mind for future posts. In the meantime, for anyone who’s interested, here is another great overview of the play that highlights Petro River Oil’s position: https://bit.ly/TEOlBE Thanks for stopping by. Please, don’t be a stranger!
James, I was wondering if you think that many companies will be moving northwest of the core area? I know Apache has a large holding in northwest Kansas and southern Nebraska, and I recently saw Encana who has around 150K acres had pulled out of a horizontal well in Lane County, KS. Do you think this is simply Encana restructuring assets or a sign that the play is limited outside of the core area?
Great question, Dylan. Len is the expert, so I’ll defer to him, and he’s out of the office until after the New Year. But, I’ll get his perspective on the situation as soon as I can and get right back to you.
Thanks for reading, and Happy New Year!
The play is definitely moving to the Northwest into an area I’ve classified as the Northern extension. In fact, several of the larger players in the core area have permitted wells in the region – Sandridge, Apache, etc. It also appears that some companies have leased large acreage positions to the Northeast.