With key leases in place and wells in progress, American Petro Hunter (OTCBB: AAPH) anticipates a promising future in Northern Oklahoma’s Mississippi formation that may rival the history of early wildcat drillers in the vaunted Bakken formation.
The young oil company, now surrounded by the big boys of the oil business including well-funded Calyx and Devon Energy, considers itself following in the footsteps of Northern Oil and Gas, which became a giant on the strength of early leases in North Dakota and Montana.
American Petro Hunter has two wells already in the North Oklahoma Mississippi Lime formation. The first well had good early production and is undergoing a second fracking procedure to increase it. A second well is spudded with promising early shows.
Just a few years ago, the North Oklahoma region was abandoned by vertical oil drillers who found their wells unproductive and uneconomical. What a difference a few years, improved technology and higher oil prices can make. Incredible refinements in horizontal drilling methods and fracking can turn a languishing lease into a viable oil well.
In old-style vertical drilling, the well was placed vertically through numerous layers of rock in hopes of reaching the productive pockets that held oil. In horizontal drilling, the bit is turned at an angle, allowing it to follow the formation layer that holds oil. Imagine trying to suck raspberry filling from a chocolate layer cake using a vertical straw, and then imagine how much more filling could be gathered from a straw that bends at the bottom and follows the filling layer.
In recent years, the technology to guide the drill bit has increased exponentially, allowing drillers to stay within just a number of feet of their intended target, said Robert McIntosh, CEO of American Petro Hunter.
In addition, there is increased experience with the use of fracturing, or fracking, which forces large quantities of water and sand into the well at high pressure, fracturing the oil-containing rock and allowing it to release oil.
Unlike other regions where thousands of vertical wells are already in place to guide horizontal drilling efforts, the Mississippian formation in Northern Oklahoma and Southern Kansas is still new territory. Far fewer vertical wells are drilled in this area, which normally provide key clues to the exact geology below the surface. Rock layers are not uniform, and like water running downhill, oil forms pools in the subterranean rock. The trick is identifying where those pockets are located. In addition, different fracking methods and materials must be chosen to yield the best result in various types of rock. Finding that sweet spot of drilling and fracking techniques is complex.
“It’s not until hundreds of wells are drilled that companies can understand what is going on with the rock,” McIntosh said. “Over time, as more wells are drilled, people will realize what we need to get a good well.”
American Petro Hunter is content to let other, larger drillers bear the brunt of the learning curve. While effective, horizontal wells and the fracking procedure are more costly than the vertical methods they replaced in the region.
But the price isn’t dissuading the company. They only need look back a few years to the 1990s when wildcat oil producer Richard Findley thought there was something special yet to be found in the Bakken formation beneath Montana, and discovered an oil field that now yields 400,000 barrels a day. Three years ago, the US Geological Survey raised its estimate of possible recoverable oil in the Bakken to 3 billion to 4 billion barrels, 25 times its estimate from 1995. Companies with early leases in premium parts of the region, like Northern Oil and Gas, made a profit quickly and continue to shine. Northern Oil and Gas’ stock has hovered in the $20-a-share range or higher all year.
Like its inspiration, American Petro Hunter arrived early in the Northern Oklahoma rush for oil leases. An article printed September 29th in the Wichita Eagle reports that quality leases now sell for more than $1,000 an acre in prime areas. Even in Kansas, where the formation isn’t likely as productive, county offices are swamped with oil company employees searching for landowners’ names and available leases.
Out-of-state oil companies have spent about $2 billion on leases in Kansas alone this year, according to a quote in the article from Dean Pattisson, the exploration and production manager for Woolsey Operating Company.
“We could turn around and sell our leases and make a handsome profit,” said Robert McIntosh, president of American Petro Hunter, “but we are oilmen not land speculators.” Instead, American Petro Hunter is taking a steady approach, using lessons on best practices. “There’s ten to 15 or even 20 years of life on these wells,” McIntosh said.
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