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Wildcatters Rush Spindletop in Return to East Texas Oil: Energy

March 20, 2014

Spindletop Drilling Crew

A drilling crew poses for a photo atop Spindletop Hill in Beaumont, Texas, in 1901. Source: Texas Energy Museum/Newsmakers via Getty Images

From the storied King Ranch near the Mexican border to the 1901 Spindletop well in East Texas-- the most famous gusher of all time--oil companies are returning to their old stomping grounds in search of the next big find.

All over East Texas, producers such as Anadarko Petroleum Corp. (APC:US) and EOG Resources Inc. are flocking back to areas that helped fuel America’s rise as a superpower after World War II. They’re applying new techniques to layers of rock stacked like playing cards underground that oil companies have drilled for decades. And, as fields from Louisiana to North Dakota are starting to show signs of fatigue, drillers are targeting areas that have long been overlooked or barely tapped.

“I never thought I’d go back to East Texas,” said Mark Plummer, a third-generation oil man who grew up hearing stories about his grandfather’s days in the oil patch “living the roughneck dream.” Those fields were thought to be long-played out by the time Plummer arrived in 2000 with his own company, Chestnut Exploration & Production. The basin was “dead as a doornail,” he said. Now he’s betting his East Texas play will be his “Jed Clampett moment,” referring to the television character who struck it rich in the 1960s TV sitcom, The Beverly Hillbillies.

East Texas’ oil and gas prospects are springing to life again. Plummer’s closely held production company just drilled a successful natural gas well in Rusk, Texas, and is preparing to drill horizontally for oil near the same formation that helped build H.L. Hunt’s energy empire in the 1930s. He plans to drill another three dozen wells over the more than 10,000 acres he’s leased 150 miles north of Houston. “Now, it’s a hot area,” he said. “East Texas is a great place to play.”

Fresh Start

Horizontal drilling and hydraulic fracturing, which cracks rocks to release oil and gas, are allowing the industry a fresh start in old hot spots, said Jordan Marye, a managing director for oil and gas at Denham Capital Management LP, which has invested in East Texas. “What we’ve been able to do is essentially have another full pass at these same resources.”

Oil companies are racing to establish new fields capable of sustaining a drilling campaign that has upended world markets and pushed the U.S. past Saudi Arabia and Russia last year as the world’s top producer of oil and natural gas. Fueling the renewed search is a concern that shale wells are petering out too quickly, raising the stakes for a new find to replace rapidly declining production in some areas. North Dakota, one of two states at the heart of the U.S. oil renaissance, saw the sharpest output decline in the state’s history in December.

Skeptical View

Not everyone is sure there is another big oil find out there. In 2011, former Chesapeake Energy Corp. founder Aubrey McClendon said all of the largest untapped U.S. fields have been discovered. So far, about 80 percent of the growth has come from just two areas: North Dakota’s Bakken shale and South Texas’s Eagle Ford formations.

Last year saw the slowest rate of oil production growth, at 40 percent, in those two areas since the onset of the boom. That compares with 2011 when oil production almost doubled in the fields.

Some producers have touted Ohio’s Utica or the Tuscaloosa Marine shale in Louisiana as the fields most likely to see a flurry of development next. Others have focused instead on wringing more out of every well. As the industry moves to dispel concerns of falling prices or wells that fizzle too quickly, many have begun to look to well-worn regions of East Texas.

Reapplying Lessons

The prolific Frio sands, the rock layer that gave birth to much of Texas’s booming production from 1930 to the 1980s, runs from the King Ranch south of Corpus Christi up along the Gulf Coast to Spindletop. The East Texas field mostly bought and developed by Hunt, a larger-than-life character who was among the world’s richest men in the 1950s, allowed his company to exceed all of German output with its oil sales to the Allies in World War II.

“If you’re going to find it, you have to go back to where you were before,” said Reed Van Valin, vice president of operations for Geomap Co., which tracks and maps the development of drilling across the U.S. “A lot of these lessons were all learned in the old conventional days. They’re just reapplying it now.”

East Texas’ potential mirrors that of the Permian basin on the western side of the state, which has been blanketed anew with wildcatters returning to fields that helped produce more than 29 billion barrels of crude since 1921.

The Search

A group of companies including Bakersfield, California-based E&B Natural Resources is drilling near Spindletop, a salt dome field in Beaumont where oil gushed more than 150 feet in the air in 1901 at the Lucas well, giving rise to a new oil age.

EOG has returned to the King Ranch, taking over operatorship of a lease long held by Exxon Mobil Corp. (XOM:US) where almost 4,000 wells have been drilled since 1939. Houston-based EOG plans to drill 24 net wells in South Texas in 2014.

The company also almost tripled oil production last year in the Aguila Vado field in East Texas, an area many companies consider an extension of the Eagle Ford formation, according to data from the Texas Railroad Commission, the state agency that regulates the oil industry. EOG has a joint venture with ZaZa Energy Corp. to drill in East Texas, and Halcon Resources Corp. has also touted its prospects in Aguila Vado. ZaZa rose as much as 12 percent today, the most intraday since October.

Geology rich with hydrocarbons extends from the King Ranch all the way across the Gulf Coast into Louisiana, said Ed Hirs, managing director at Hillhouse Resources LLC, which plans to drill in Matagorda County south of Houston.

“We’re going back to the most drilled county in America, but the opportunity spans a huge physical area,” said Hirs, also an energy economist at the University of Houston. “It’s thousands of square miles.”

Apache, Anadarko

Apache Corp. (APA:US) disclosed new drilling plans about 90 miles northwest of Houston last month. Earlier in February, Anadarko identified East Texas and Louisiana as areas of interest in its hunt for the next big one.

“We’re taking cracks at trying to find the next big oil play that will make a difference to our company,” Charles Meloy, Anadarko’s head of onshore exploration and production, said in a Feb. 4 conference call.

The 59-year-old Plummer says the estimated amount of oil in the ground that he expects to produce in the area he’s carved out in East Texas may be worth as much as $1 billion to Chestnut. He visited the site at the end of February, standing in the middle of a pasture, cows trudging by, watching bulldozers scrape the sandy red dirt away for a brand new drilling pad.

Fifty years ago, 45 wells drilled into those pastures had produced 5 percent of the estimated 45 million barrels of oil in the field’s underground rock. Those wells have been plugged and abandoned for 40 years.

Black Gold

Though the proverbial black gold has yet to flow from Plummer’s new wells, he compares the moment he acquired drilling rights in the old Salmon field to when the Hillbillies’s Clampett shot at some wild game and saw oil bubble up from the ground. He figures other oil companies swarming the area missed the spot because geologic maps showed it tapping rock identified by a lesser-known label -- the “sub-Clarksfield” instead of the currently hot prospect called the “Woodbine.”

When Plummer discovered nobody had leased the field yet, he jumped to attention. “We need to drop everything and get after it,” he told his land department, setting off an urgent, secret drive to sign mineral-rights leases with land owners on the site.

Now East Texas is the biggest focus at his company.

“Any time you can go back to an area like Spindletop, it’s really good,” he said. “I think it’s going to be just as hot as West Texas within a couple of years.”

To contact the reporters on this story: Bradley Olson in Houston at bradleyolson@bloomberg.net; David Wethe in Houston at dwethe@bloomberg.net

To contact the editors responsible for this story: Susan Warren at susanwarren@bloomberg.net Will Wade, Robin Saponar


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Companies Mentioned

  • APC
    (Anadarko Petroleum Corp)
    • $89.97 USD
    • -2.12
    • -2.36%
  • XOM
    (Exxon Mobil Corp)
    • $93.13 USD
    • -0.52
    • -0.56%
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