Still Waiting For The Floyd Shale

By Eric Fox | May 28, 2009 AAA

Operators have had to deal with lower cash flows and tight credit, forcing them to focus on mature plays like the Barnett and Fayetteville Shale, or high profile emerging plays like the Haynesville, Marcellus and Bakken Shale. The Floyd Shale is another promising unconventional resource play in North America but it has not received enough capital from the exploration and production industry to determine its true potential.

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Floyd Shale Potential
The Floyd Shale is located in Mississippi and Alabama, and is sometimes referred to as the Neal Shale. It is an Upper Mississippian formation that is located in the BlackWarriorBasin. The Floyd Shale is similar geologically to the Barnett Shale in Texas.

Since there has not been a lot of industry development activity in the Floyd Shale, it is difficult to assess the nonrenewable resource potential. In 2007, the U.S. Geological Survey (USGS) conducted an assessment of the basin. Since several other shale plays underlie in or near the BlackWarriorBasin, the USGS survey included the Floyd Shale, the Chattanooga Shale as well as all other undiscovered oil and gas in what it called the "Paleozoic Total Petroleum System."

The USGS divided the basin into two assessment units: Carboniferous Sandstones and Pre-Mississippian Carbonates, and estimated the undiscovered resources to be:

Resource Amount
Oil (MMBO*) 5.9
Gas (BCFG**) 1455
Natural Gas Liquids (MMBNGL***) 7.6
*million barrels of oil
**billion cubic feet of gas
***million barrels of natural gas liquids

These numbers understate the true potential of the play, however, as the estimate is based on very little data and lists only the conventional resources that are undiscovered.

Testing Floyd Shale
Denbury Resources
(NYSE:DNR) is one operator that has tested the commercial viability of the shale prior to the fall in commodity prices. The company drilled two wells in LamarCounty in 2006. Neither of these wells were commercially successful. The first one didn't produce enough natural gas and the second one could not be hydraulically fractured.

Carrizo Oil and Gas (Nasdaq:CRZO) is one of the few exploration and production companies that still mention the Floyd Shale in its marketing materials. The company has 71,000 acres under net lease, but is devoting no capital toward the play in 2009, as it concentrates on the Barnett Shale.

Cabot Oil and Gas (NYSE:COG) reported a well in the Floyd Shale in October 2007, but did not give further details. The well was a vertical well that was used to evaluate the shale play.

Murphy Oil (NYSE:MUR) was also evaluating the play, and drilled three test wells back in 2005 and 2006. The company did not release any details of the wells. This is not unusual in North America, as operators don't want the price of land to increase prematurely.

Range Resources (NYSE:RRC) drilled a test well also in 2007. The company had 50,000 acres under net lease as of early 2008.

The Bottom Line
The Floyd Shale is not ready for prime time, as the industry was forced to reallocate resources to shale plays that were certain to provide an acceptable payoff. This one will have to wait a little longer before its potential is known. (For a primer on the oil industry, refer to our Oil and Gas Industry Primer)

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