'Million dollar question' looms over Smackover oil

June 12, 2011 

SMACKOVER, Ark. (AP) - Oil companies have been furiously buying leases in south Arkansas in hope of getting a share of oil trapped in limestone almost two miles beneath the ground.

Whether that oil can be tapped affordably remains to be seen.

"That's the million-dollar question," said David M. Schoeffler, senior project manager for Schoeffler Energy Group in Lafayette, La.

Schoeffler said the firm was "very much involved" in buying leases for a client, despite the uncertainty of the find.

The oil is in what's known as the Smackover Formation, which is different from the shallower Smackover Field, a source of oil in Union County since the boomtown days of the 1920s.

The town of Smackover, population 2,000, is home to the Arkansas Natural Resources Museum, formerly known as the Oil and Gas Museum. An introductory display explains the various layers of rock and oil deposits beneath the ground, but it only goes down to 8,000 feet.

The oil that's creating the excitement is trapped in limestone between 9,000 and 10,000 feet deep. It has been tapped by one exploratory well, which only pumped out about 45 barrels per day, said Lawrence Bengal, director of the Arkansas Oil and Gas Commission.

Even at prices near $100 per barrel, that's hardly enough to pay for an investment of more than $10 million, especially considering that oil wells produce a diminishing return as the supply is tapped out.

Another firm has applied for a permit to drill a second exploratory well.

Bengal and others say drillers need time to perfect the method, just as natural gas drillers in the Fayetteville Shale play needed time to work out the technique of using water and chemicals pumped in to the ground at high pressure to fracture rock and extract the fuel.

One difference is that the oil drillers will be trying to penetrate limestone, not shale, which is much less dense.

Rob Reynolds, president of Shuler Drilling Co. in El Dorado, said initial costs will be high for companies that want a piece of the action.

"Rocks are more complicated than people think," Reynolds said. "To give up their contents, it may take a while to figure out how to do it."

Technology continues to advance, yet even with improved methods, Reynolds said the formation is not guaranteed to lead to an oil boom.

"There is no way to predict the success of this venture," Reynolds said.

There is plenty of evidence around Smackover and the rest of Union County, near the Louisiana border, of the cycles of the oil business. Oil pumps bob up and down in farm fields while elsewhere abandoned equipment rusts amid high weeds.

Bengal said the most intense leasing is taking place between Magnolia in Columbia County and El Dorado, but the activity stretches into Claiborne and Union parishes in Louisiana and as far west as Miller County and into Texas.

"Much like the Fayetteville Shale (in north-central Arkansas), where people started taking leases in east Arkansas, as far as Woodruff and Cross counties. Those areas were initially thought to be prospective though they turned out not to be," Bengal said.

Firms involved in buying the leases often are working for oil companies, and neither group is too interested in talking about what they're up to because of intense competition.

James Fugate, president of Pinebelt Energy Resources Corp. in Fairhope, Ala., said, like Schoeffler, his firm bought leases and the project is now on hold.

"It is certainly large," Fugate said of the scope of the play. But he could say no more, explaining the work was "a very confidential project."

Reynolds said his company doesn't have a direct stake in the play, but the business is well situated if there is a rush to drill.

"You always hope to," Reynolds said. "It can always develop in a manner different than we had in mind."

The method of using millions of gallons of fluid to fracture rock, known as hydraulic fracturing or fracking, has caused environmental concerns over disposal of waste water and possible contamination of drinking water wells. The Oil and Gas Commission has ordered a halt to work at two natural gas wells north of Conway, where fracking is suspected of triggering small earthquakes.

The Sparta Aquifer, which is Union County's only source of drinking water, is only several hundred feet deep. Bengal said drillers don't need a water permit as there is no indication the drilling would impact the aquifer.

The first exploratory well was drilled horizontally, rather than straight down as wells were commonly drilled to reach oil that's closer to the surface.

"The (horizontal) wells are more costly than a shallow, vertical hole," Bengal said. But the expense doesn't mean only very large oil companies, such as Exxon Mobil Corp. or Royal Dutch Shell, are the only ones that could afford to make the investment.

"You can have smaller independents in this type (of exploration)," Bengal said.

Reynolds said there is a significant risk for investors, large or small.

"There's no substitute for judgment," he said.

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