By Paul Wiseman, special contributor
Landmen see Basin land rush moving northward and eastward.
It only seems like there’s an echo in here. It’s just that people really are repeating “Cline Shale, Cline Shale,” wherever you go, a phenomenon that can be especially unnerving in small space like an elevator.
It’s not that this play was immediately on everyone’s radar, said Christian Patry, project manager for Cimmaron Field Services, Inc., which specializes in right-of-way and lease acquisition. “Some people who had doubts about it before called it the ‘decline,’” at first, but now, “Those same people are all of a sudden becoming interested in these areas,” he said.
“These areas” of the Cline Shale include all of Mitchell and Sterling counties, most of Glasscock and Howard, significant parts of Nolan, Scurry, Fisher, Reagan, and Irion counties, plus slivers of Tom Green, Coke, Kent, Stonewall, and Martin counties along with a tiny bit of the southeast corner of Borden County. The formation covers 9,800 square miles.
Experts have known for decades that the Cline Shale held vast reserves, but it was not until the end of 2012 that its accessibility began to appear on producers’ radar. Now, Patry noted, the formation is being touted as “a record-setter,” with up to 30 billion barrels of recoverable oil, a significant part of the production increases that could make the United States energy independent by 2017-2020.
For landmen, Patry noted that “There is a lot of fieldwork to be done because there hasn’t been that much activity there before.” While there has been some oil production from the counties involved, the Cline has much bigger promise than formations that have been produced longer. So landmen will be checking for open acreage and other information.
Not unlike a gold rush of previous centuries, any new mineral find creates competition for opportunities. Among landmen, Patry noted, the intensity of the Cline Shale competition depends on whether one is a field landman or an in-house employee of an E&P.
As for field landmen, “You’re starting to see more and more people go out there, but their involvement in that play is based upon what their corresponding clients, being in-house landmen, want to do,” Patry explained.
“It’s starting to get competitive out there, yet, if you go to the courthouse they’re not shoulder-to-shoulder quite yet.”
Where the Cline overlaps with other already-producing formations, this presents a new opportunity for landmen to lease land that is already seeing minerals come to the surface. That’s because, said Patry, leasing is formation-specific. Those specifics come under the Pugh Clause.
According to the website www.mineralweb.com, the clause is named after Lawrence Pugh, a Crowley Louisiana attorney who developed the clause in 1947.
Patry explained how it works. “The Pugh Clause is a clause in a lease that basically releases nonproducing lands outside of the primary term of the lease.” There are vertical Pugh clauses and horizontal ones. Originally intended more for horizontal terms—in other words, nonproducing lands at a distance north, south, east, or west of the producer—these clauses now are in play vertically. They release areas below a known producing zone. This allows various depths to be leased separately.
Landmen, therefore, even in a region that is already producing oil, may check with the Railroad Commission to see what depths and formations are still available. This is true not just in the Cline Shale areas, but in other multi-layered production regions in the Permian Basin.
Drilling at multiple depths does not necessarily mean more tightly spaced surface wells. Patry pointed out that the proliferation of horizontal drilling has actually decreased the number of wells at the surface, especially where laterals may extend for two miles or more.
Not only is production getting deeper in the area, it’s getting wider. For instance, Borden County, which has indeed been producing oil since 1947 but has seen little activity in recent years, is beginning to heat up. Kimberly Smith, president of Development Resources, has seen producers begin to move back into Borden’s portion of the Strawn, Mississippian, Spraberry, Wolfcamp, Ellenburger, and other formations.
Most of the Borden County interest has come from Oklahoma firms, but Texas companies are getting on board as well, Smith related. Scurry County is also in the Mississippian mix.
Smith understands why there is such leasing activity in Martin, Howard, and Upton counties: because they are on a huge upward swing in the production curve. “Everybody wants it when it’s producing,” she said, “but there are other plays that are going on in development.” She listed southwest Culberson County as one area that has seen new activity over the last 12 months along with the northern part of the county along its border with New Mexico. Cimarex and other companies are looking to get infrastructure there.
Having attended the NAPE conference in Houston earlier this year, Smith was surprised to find little Permian acreage for lease. “It’s very hard to get people to understand that you can still get acreage out here and it’s not costing $3,000.” When she was asked about those numbers at the conference, she told them, “No, you can still get acreage at a reasonable price, you just have to be good to the landowners.”
Patry noted that Lubbock, Hockley, and other counties to the west are also in the mix for new production. New areas are of great interest to landmen because of their simplicity relative to older plays. In older plays, mineral rights are often sold separately from surface rights, meaning a potential producer must deal separately with surface rights from mineral rights. Even more complicating is the fact that, over the decades, those mineral rights may have become fragmented into eighths, sixteenths, thirty-seconds and smaller parts. In Lubbock and its environs the mineral rights have not mattered until now, so they are often still intact with the land itself.
On a broader scope, Smith is concerned about the future of the landman sector in regards to there being enough new blood to replace those about to retire—a concern shared by most areas of oilfield endeavor.
For years, land schools were dormant, she said, “Then suddenly UTPB, Hoxie Smith [director of Midland College’s Petroleum Professional Development Center], everybody had to start training people,” because, with higher oil prices holding steady, more people were needed and more were being drawn into the oil industry.
Still, she sees a 20-year gap between the longtimers and the newer generation such as herself. “The people who’ve been in it can’t retire because we still need them.” That is at least in part because the training process for new landmen is quite lengthy. “It’s not something you can pick up overnight,” she added.
This may be a particularly difficult job to fill longterm because, when a downturn happens, the land department is usually the first to get slashed. Existing production may continue, meaning the retention of those workers, but the need for new leases drops quickly. This is why, in Patry’s estimation, the Cline Shale is of particular note to landmen.
“The Cline is exciting to a lot of people, especially landmen, because it denotes job security,” he said, only partly in jest. “As a landman, you go where the work is, even if you’re in-house.” Still, the field landmen are particularly vulnerable in a downturn.
So that “Cline Shale” echo that continues in the ears of everyone in the Permian Basin is coming primarily from the land department because it’s the sound of steady work for, hopefully, 20 years or more.