Southwestern Energy (NYSE:SWN) disclosed a large acreage position that is prospective for the Lower Smackover Brown Dense formation, an unconventional oil play that is present on the company's leasehold in parts of Arkansas and Louisiana.

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Lower Smackover Brown Dense
This formation is a Jurassic-age carbonate rock present in various forms from Texas to Florida. The formation is the source rock for the Upper Smackover, which has been producing oil for nearly 100 years.

Southwestern Energy has 460,000 net acres exposed to this formation, which was evaluated by the company's New Ventures group. The group has been conducting seismic studies on the acreage over the last two years.

Southwestern Energy said that the Lower Smackover Brown Dense formation is present on the company's leasehold at depths ranging from 8,000 to 11,000 feet, with a thickness between 300 and 550 feet.

A $150 Million Investment
The company reported investing $150 million here to date, and it has leases with four-year terms along with four-year extensions. The company is waiting on a permit to drill its first well into the new play in the third quarter of 2011 at an undisclosed location in Columbia County, Arkansas.

Southwestern Energy plans a second well in late 2011 in Louisiana, and if successful, the company may drill up to 10 more wells in 2012. It plans to drill both these test wells with horizontal laterals.

Other Stealth Plays
Exploration and production companies are typically secretive while evaluating a new play to prevent competitors from coming in, leasing up acreage and bidding up the price. Newfield Exploration (NYSE:NFX) has been working on assembling acreage in an undisclosed "stealth play" and has already leased 100,000 net acres of leasehold in this unidentified play.

On the same day that Southwestern Energy disclosed the company's new play, Chesapeake Energy (NYSE:CHK) also reported new information on the Utica Shale, an area where the company has been openly testing and accumulating acreage over the last year.

Ramp-up in Activity Planned in Ohio
Chesapeake Energy has 1.25 million net acres in Ohio prospective for the Utica Shale, and it's planning a huge ramp-up in activity here over the next few years. The company is currently operating five rigs and plans to increase that to between 16 and 20 rigs by the end of 2012 - and possibly even 40 rigs by 2014.

The company compared the play favorably with the Eagle Ford shale and said that the Utica Shale is "economically superior" to this well-known formation in Texas.

Other Companies Working On New Oil Plays
Another company working on a new oil play is GMX Resources (NYSE:GMXR), which has 40,000 acres of leasehold below the Haynesville shale in East Texas. The company plans to test this formation in 2011.

In June 2011, Devon Energy (NYSE:DVN) received a permit to drill a well into the Smackover formation on a lease in Morehouse Parish, Louisiana. The company has not disclosed any further details on the status of this well.

Beware of Development Risk
Although Southwestern Energy has considerable prowess as an exploration and production operator, investors should be conservative when assigning a value to the company's recently disclosed position in the Lower Smackover. The initial development of new plays carries more risk than the market might expect. (For additional reading, check out Unearth Profits In Oil Exploration And Production.)

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Tickers in this Article: SWN, NFX, CHK, DVN, GMXR

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