The New Albany shale is a tease. It stretches across a broad swath of the immense Illinois Basin, and it is chock-full of alluring attributes.

Certainly, the New Albany seems to offer all the attractions of a commercial shale-gas play. It’s thick, loaded with total organic carbon, and has produced gas since the 1870s. The Devonian-age shale even correlates to the Antrim shale in Michigan, Lower Huron in eastern Kentucky and Woodford in Oklahoma, all powerhouse, producing reservoirs.

Nonetheless, results have been decidedly mixed. Some nice little fields have produced for decades, and results in other areas have been horrible.

Two Gas Types

Production from the New Albany spans more than a century, and its popularity as a target has waxed and waned in step with gas prices and technological breakthroughs. One reason it’s been so difficult to develop is that it’s actually a mix of two dissimilar gas plays: biogenic and thermogenic shale.

In the early 1990s, explorers focused on the biogenic play, in which gas is generated by microbes. Interest was high due to runaway success of the Antrim shale in Michigan, the archetype of biogenic shale gas. During this era, New Albany work concentrated around the eastern rim of the Illinois Basin, where the shale was shallow and laced with abundant natural fractures. Operators approached it as a dewatering play, with the idea that gas flows would increase as water was produced.

Many vertical producers were disappointing, however. Water certainly gushed from the wells, but gas rates were uneven. Economic results were seen at Corydon Field, in Indiana’s Harrison County.

Discovered in 1923, Corydon had produced gas for several years before being shut-in. Beginning in 1995, Mercury Exploration (now Quicksilver Resources Inc.), an experienced Antrim player, launched a redevelopment program that culminated in more than 200 New Albany wells, mainly vertical, open-hole producers. At Corydon, the shale attains 100 feet of thickness at average depths of 1,000 feet. Individual ultimate well recoveries are close to 250 million cubic feet of gas.

Success was not widespread, however, and activity tailed off. Another flurry of interest occurred a few years ago when horizontal drilling in shale plays made its debut.

This was a two-pronged effort. One set of companies started to hunt for thermogenic New Albany gas. In this model, prospectors probed the depths of the basin in western Kentucky where New Albany characteristics looked most similar to the Barnett shale of North Texas.

Shale-savvy independents assembled acreage blocks and launched pilots, driven by the concept that gas could be extracted from areas of hot, thick New Albany through use of horizontal wells and artificially induced fractures.

That approach didn’t work so well, and multiple failures dampened enthusiasm. Whether lack of success was due to inherent high present-day stress or caused by something such as mineralization was unclear.

Other operators concentrated their efforts in southern Indiana, in an area of biogenic gas where open fractures were prevalent. Lateral wellbores were used to access natural fracture systems, and most wells were not stimulated.

Explorers were encouraged by reports of success in Daviess County, Indiana, where a batch of horizontal New Albany wells appeared to be commercial. Broader results were patchy, however, and the area is in flux.

One slice of the play that is promising is in Sullivan County, Indiana, where Noble Energy Corp. is working. Wells from its 2007 program are performing about as expected, and Noble has reported single-well costs of $1 million and recoveries of 1 billion cubic feet equivalent each. It has 12 wells onstream at its Paxton play, and production averages 200,000 cubic feet per day per well.

This year, the Houston-based company will drill 15 to 20 wells, mainly in its Paxton area. Four are scheduled for a new block of acreage at Round Rock, in Dubois and Pike counties. Noble holds 179,000 net acres in the play.

Nearby, Diversified Operating Corp. is a Golden, Colorado-based private firm that has a horizontal project in Pike and Knox counties, Indiana. “We’re treading water right now,” says Terry Cammon, president and owner. “Gas takes are a huge problem in this area.”

Diversified has drilled seven horizontal New Albany wells and two vertical disposal wells on a 75,000-acre project. It put in 14 miles of gas gathering, and a water-handling system.

But the company’s gas was transported by a small, local pipeline that went bankrupt. The system is in receivership; Diversified has applied to the state of Indiana to be named operator. “If we prevail in court, we hope to open that transport system up in the next 30 days.”

Drilling results were phenomenal; tests looked good. “But by the time we put in the infrastructure, production rates did not look as promising. We want to stimulate the wells, but before that we need a consistent gas outlet.”

To make economic sense, a horizontal well in this region (3,000 feet true vertical depth; 4,500 to 5,000 feet of lateral) needs to come online at initial rates of 500,000 to 1 million cubic feet per day. Diversified’s drilling costs are quite reasonable: From $1.4 million on its first well, it dropped costs to $600,000 on its seventh. Assuming a 70% decline the first year, such a well can pay out quickly.

“We had very good drilling results, but we have spent $20 million and haven’t made any money yet.”

New Thermogenic Field

Now, a breakthrough has been made in the thermogenic play in western Kentucky. Lexington, Kentucky-based NGAS Resources Inc. has drilled a New Albany field in Christian County that will soon be tied into production. The field marks the play’s first present-day thermogenic success, and it’s developed with vertical wells.

“The New Albany is not as attractive as some other shale plays at present, but from what we have done here already, we believe there is significant potential,” says Mike Wallen, vice president. “It’s not a blanket play and drilling results have been spotty and inconsistent over the years. But, there are definitely pockets of economic wells.”

NGAS has found one such sweet spot at its Haley’s Mill project. The company started working the shale in 2005, and drilled five horizontal and 25 vertical wells in Kentucky’s Ohio, Breckinridge and Meade counties, on the fringe of the biogenic gas area.

“We were not pleased with results from those wells,” says Brint Camp, vice president, geology. “All indications, from logs and frac jobs, were that we had minimal natural fracturing.”

At Haley’s Mill, however, the situation was much improved. NGAS initially took the 25,000-acre prospect for a shallow-oil objective, and then deepened a test to look at New Albany. It found 180 feet of shale at depths of 2,500 feet. “We encountered very good, natural flow rates,” says Wallen. “We kept drilling, fracing and testing wells, and continued to achieve strong results.”

To date, the company has drilled 29 vertical wells, and they are awaiting hook-up. It air-drills its holes, runs 41?2-inch casing, and uses straight nitrogen fracs. Per-well costs are $150,000 to $175,000 and expected recoveries are 135- to 200 million cubic feet.

“We don’t have production data yet; but we have flow tests. We expect to start production in the third quarter.”

Currrently, NGAS is consolidating acreage and laying a gathering system. Field gathering equipment is already installed; the gas contains around 7% nitrogen, so the company also built nitrogen-extraction facilities. It’s also acquiring rights of way for a 14-mile spur to connect to an interstate transmission line.

“Currently, there is no infrastructure in place to move the gas,” says Bill Daugherty, president and chief executive.

Usually, local utilities are not prepared to handle native gas, and producers can find it difficult to secure reliable markets. The best choice is a hot tap into one of the high-pressure transmission lines that traverse the state.

Daugherty says, “Our preference is to flow our own gas directly from the wellhead into interstate pipelines as we have more control than relying on third parties. However, to achieve an attractive return on our infrastructure investments, our projects have to be quite large.”

The New Albany is a labor-intensive play. “We need significant volumes to make it worthwhile to build a gathering system and get into a pipeline. The New Albany prospect is a large area and we have to find the spots that offer the most potential and develop those.”

This year, NGAS plans to drill 30 New Albany wells, including a couple of horizontals, at Haley’s Mill. Additionally, it will drill six to eight exploratory wells on other acreage.

Research Effort

Another heartening piece of news for the New Albany is the launch of a significant research study. The Research Partnership to Secure Energy for America (RPSEA) has selected a New Albany project for one of its awards in its Unconventional Resources Program.

RPSEA is a non-profit consortium that manages funds for a hydrocarbon-research and -development program set up by the Energy Policy Act of 2005. Its unconventional program is designed to bring together researchers from academia and industry.

The New Albany effort, which is just kicking off, is a three-year, $3.5-million effort spearheaded by the Gas Technology Institute. Its goal is to develop techniques and methods to increase success ratios and productivity.

Up to 160 trillion cubic feet (Tcf) of in-place gas is carried by the New Albany, and some 10.5 Tcf of that is estimated to be producible.

Industry participants are Noble Energy, CNX Gas Corp., Trendwell Energy Corp., BreitBurn Energy Partners LP, Diversified Operating and Aurora Oil & Gas. Research participants are Texas A&M, West Virginia University, Amherst College, the University of Massachusetts, the Bureau of Economic Geology, ResTech and Pinnacle Technologies.

“This is a big and important project, and it has a very powerful team,” says C. Michael Ming, RPSEA president. “This is a marquee example of what we wish to accomplish.”

For one participant, the research consortium figures prominently in its plans. CNX Gas, based in Pittsburgh, holds more than 350,000 acres of Illinois Basin leases. The company applies a three-tier approach to its position: evaluating conventional potential, improving its understanding of existing biogenic and thermogenic production, and participating in the shale-research consortium.

“We will take into consideration information gleaned from the consortium before drilling wells to exclusively test the New Albany shale,” says Nicholas DeIuliis, CNX president and chief executive.

Prospecting Proceeds

Meanwhile, prospect generators have not paused in their efforts. Denver-based Savant Resources LLC has put together a large contiguous acreage block in the thermogenic play.

“We think the New Albany has been an overlooked play,” says Keith Engler, vice president, business development. Savant is intrigued with the whopping size of the resource. “If we apply the right drilling and completion technologies, with these strong gas prices, we hope we can commercialize this in our area.”

For thermogenic shale-gas players, a sticking point has been the shale’s low vitrinite reflectance (% Ro) values. Thermal maturity measurements in the New Albany are lower than the traditional gas window, and that has dissuaded some explorers.

However, Savant has a different take. “We think there is thermogenic gas at Shrewsbury Field in western Kentucky at 0.6% Ro, and the NGAS activity is thermogenic at 0.6%. In eastern Kentucky, there’s thermogenic gas production down to 0.6% Ro. Rock-evaluation data show that this shale appears to generate sufficient gas saturation at Ro values of 0.53%.”

Savant decided to stake its claim on the northern lip of the Rough Creek graben, where vitrinite reflectance is between 0.8% and 0.9% Ro, and the shale is 350 feet thick at depths between 4,000 and 5,000 feet. The Rough Creek graben contains the most thermally mature shales, and values can be above 1% Ro.

“We observed that porosities in the graben are lower, so we traded off some maturity for increased porosities and lower frac gradients.”

The company has acquired a prime lease block. It holds 35,000 contiguous acres in its Camp Breckinridge prospect, a former army training camp in Union and Henderson counties. Most of the block is held by production; its partner, Core Minerals Production Co. LLC, operates the shallow wells. Distance to pipeline, always an issue in the Illinois Basin, is seven to 12 miles.

Savant plans to spud its first well in late summer. It will begin with a vertical test, and run an advanced logging suite.

“We know we’ll have a learning curve,” says Engler. Lots of questions surround appropriate well construction and whether to try verticals, open-hole laterals or multilaterals. Also, stimulations are key. “We think the New Albany can be fraced; it contains more than 40% silica, and natural fracture systems present around the basin prove that it’s brittle.”

Another group prospects in an area where it expects mixed biogenic and thermogenic gas. Geologist Tim Gognat operates as Global Geodata LLC, and is associated with landman Bruce Branson. Both are based in Denver.

The partners have put together 250,000 acres in the Illinois Basin in five projects, and sold these to various operators. Drilling is under way on several prospects.

“The New Albany is fairly quantifiable in terms of gas content, thickness and thermal maturity,” says Gognat. “We see the major problems as lack of infrastructure and information.”

Secrecy abounds, as states that host the New Albany have minimal reporting requirements. Operators can—and do—keep a great deal of information tight.

Global Geodata’s Rio Rojo project is currently on the market. It’s a 34,000-acre lease block in Dubois, Crawford and Perry counties, Indiana. Leases have five-year terms, and five-year extension options.

The prospect lies one county west of Corydon Field, in an area that is predicted to have enhanced natural fracturing. The shale is 110 to 140 feet thick across the block, and occurs at depths of 1,300 to 1,800 feet. A major transmission line is within two miles.

“The potential of the New Albany is clear; now it’s a matter of sticking to it,” says Branson. “We see a lot of companies drill three wells and then stop. This play requires long-term commitment and patience, and rewards could be incredible.”