Tenn. Volunteering Massive New Energy Supplies to U.S. Energy Portfolio

When people hear “Tennessee,” many think of Nashville – the home of the Grand Ole Opry and a mecca of live music. Others look farther west, toward delicious Memphis barbecue and Graceland. And, of course, there’s a certain SEC football team in Knoxville, located next to the Great Smoky Mountains and currently, desperately, looking for someone, anyone to coach their team.

What very few people would associate with Tennessee, however, is oil and natural gas development. According to the EIA, the Volunteer State produced 245,000 barrels of oil in 2011– roughly the same amount of oil that New Mexico produces every day.

But some news this week suggests that could all be changing. A single horizontal well in the Mississippian Fort Payne limestone in Tennessee has just been completed, and the operator – Miller Energy – estimates that it could produce 200 to 225 barrels per day. Such production would represent an increase in Tennessee oil production of roughly 30 percent. And every bit of it, all from a single well.

So, does this mean Tennessee has officially joined the ranks of large shale producing states like Texas, Pennsylvania, and North Dakota? Well, no, not exactly – not yet at least. But it does suggest that the development of tight resources in Tennessee could increase in the near future, providing more economic opportunity, more tax revenue, and more jobs to a state currently suffering from a 7.6 percent unemployment rate.

Talking of future economic benefits based on the completion of a single well might seem a bit presumptive, but let’s recall recent history: For decades, the industry acknowledged the enormous potential of shale and other tight reservoirs throughout the country, but technological and economic obstacles prevented large-scale commercial activity. Once George Mitchell cracked the code in the Barnett Shale of Texas by combining hydraulic fracturing and horizontal drilling, however, the opportunities in shale basins all across America skyrocketed.

Still, even with industry-wide best practices and the benefit of scalable technologies, each geological formation still represents its own code to be cracked, and investing the time and effort to complete the first successful well can be overwhelming. But once that’s achieved? Subsequent wells benefit from knowledge of “what works” for that specific formation, which means new wells are often easier to drill and complete. That can mean lower costs and, ultimately, an increase in production.

Of course, it’s not surprising that this potentially great sign of things to come in Tennessee was made possible by an independent company like Miller Energy. Indeed, independents are the backbone of America’s oil and natural gas industry, drilling 95 percent of all new wells in the United States and producing nearly 70 percent of the country’s oil. Not for nuthin’, but independents were also what made the “shale revolution” possible to begin with – and what will ensure it remains the phenomenon it’s become for decades for decades into the future.

So, in summation: no, the Volunteer State likely won’t surpass Texas any time soon in oil production. But it is hard to see this successful horizontal well as anything but a positive development for the state – and one that observers of this space will be watching very closely over the next 12 months.

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