The Fuhrman-Mascho field in West Texas is a textbook example of why the dire warnings of peak oil enthusiasts might never come true, as the exploration and production industry has started to rejuvenate this mature 70-year-oil field over the past decade.
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Location, Location, Location
The Fuhrman-Mascho field is located in West Texas in the Permian Basin, one of the oldest producing fields in the U.S. The Fuhrman-Mascho field was first developed in the 1930s, and has several producing zones including the Grayburg and the San Andreas formations.
Geologists estimate that the San Andreas formation across the Permian Basin still contains 70% of the original oil in place. While not all these resources can be produced commercially, some companies are trying to squeeze every drop they can.
Step In the Arena
Arena Resources (NYSE:ARD) has been one of the leaders in this effort. The company first acquired acreage in the Fuhrman-Mascho field in 2004, and has drilled hundreds of wells there since. The company's production has moved up from 200 gross barrels oil equivalent (BOE) per day to 8,000 BOE per day. Arena Resources has done this by recompleting old wells using new technology to increase production, and with infill drilling.
The usual criticism of this type of development is that the cost of developing mature oil assets is cost prohibitive, but according to the company's numbers, its three-year average finding and development costs are $11.77 per BOE.
Arena Resources has also been developing the Yates formation, a natural gas bearing zone in the area. The company has recompleted 40 wells here in the first nine months of 2009.
Since the natural gas has high nitrogen content, Arena Resources signed an agreement with the Public Service Enterprise Group (NYSE:PEG) to pipe the gas to a power generation facility owned by the Public Service Enterprise Group. The facility can handle the Yates natural gas without having to remove the nitrogen.
Other companies are also anxious to establish or add to existing positions here. Energen Corp (NYSE:EGN) spent $182 million earlier in 2009 to buy 13,000 net acres and proved reserves of 15.3 million BOE from Range Resources (NYSE:RRC), which is exiting many of its non-core positions.
Linn Energy (NYSE:LINE) bought some Permian properties several months ago. The company spent $118 million for assets on both the Texas and New Mexico parts of the basin. Linn Energy picked up proved reserves of approximately 12 million barrels of oil equivalent (BOE) and production of 1,350 BOE per day. This production should start increasing quickly, as the company has already identified 180 locations to drill on the new acreage.
The Bottom Line
The exploration and production industry has targeted dozens of oil fields that were given up for dead as mature and unproductive. More efforts like these will be needed if the rising energy demands that are predicted over the next generation are realized. (Learn about factors that affect oil prices in our article, What Determines Oil Prices?)
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