A new generation of energy companies has renewed a suspended 30-year pursuit in central western Missouri for its significant heavy oil reserves. The lure draws from historical success of the 1980s steam flood projects that ended abruptly from a precipitous decline in oil prices. That impact of low oil prices on enhanced oil recovery (EOR) projects lingered for decades; however, the companies currently working this heavy oil play believe oil prices are here to stay, and that innovative new technologies and economies of scale will further reduce development costs. In addition, the heavy oil has a ready market at several regional refineries, the largest of which is in Coffeyville, Kansas, within 100 miles of the area.

The Department of Energy (DOE) in 1979 estimated the heavy oil system to have 1.4- to 1.9 billion barrels of oil in place. Internal studies of new-entry players with active drilling and coring programs suggest the resource base could be much larger. The Missouri heavy oil (MOHO) play extends over multiple counties and hundreds of thousands of acres. The state's publications estimate that, at $55- to $65-per-barrel oil and with current technology, the value of Missouri's heavy oil lies between $35- and $42 billion dollars. Sustainable high oil prices make this a "big game" opportunity for those in the hunt.

History and geology

Missouri's first heavy oil production surfaced in the 1850s as oil seeps greased wagon axles heading west. A century later, major energy companies followed the boundaries of subsurface accumulations experimenting with a variety of EOR techniques. These EOR methods included water flood, steam flood, CO2 flood and in-situ combustion. Continuous steam injection won the first round of cost-effective pilots.

Location of Missouri Heavy Oil Area

World-class resource potential and high oil prices of the 1980s provided incentive for two independent companies, Carmel Energy Inc. and Jones-Blair Energy Inc., to launch three commercial steam flood projects. These early steam floods produced more than 700,000 barrels of oil before the price-spike window closed. The larger of the projects, that of Carmel Energy, peaked at approximately 600 barrels of daily gross oil sales, as documented by the Missouri Department of Natural Resources.

The Missouri heavy oil play lies within the Bourbon Arch structural feature that joins the northern edge of the Cherokee Basin with the southern edge of the Forest Basin. The majority of the heavy oil accumulations reside in the Lower Blue Jacket and Upper Warner sandstones, with the Upper Warner the more significant of the two reservoirs.

Bourbon Arch Structural Feature (Netzler, 1990)

The Blue Jacket and Warner are Pennslyvanian age and are part of the Cherokee Group. The sands were distributed by a pro-grading fluvial deltaic system that flowed northeast to southwest from western Missouri into Kansas and Oklahoma and deposited them into a muddy/silty environment of peat swamp. The sands are both lenticular and discontinuous in nature; however, the Warner is thicker and more continuous.

A type log from a Vernon County well shows the Upper and Lower Blue Jacket from 120 to 130 feet with 20% porosity and the oil-saturated interval with at greater than 30 ohms. The better developed Upper Warner shows 59 feet of oil saturation from 160 feet to 219 feet with 23% porosity. Core samples of the Upper Warner have good permeability with common averages of 250 millidarcies or better.

The Upper Warner and Blue Jacket sandstone maps from a 1979 DOE report show the extent of the significant subsurface heavy oil accumulations. The oil accumulations get shallower as they move east. The Upper Warner crude oil is between 15 and 23 degrees API gravity with low sulphur and gas content.

Type Log, Blue Jacket and Warner (courtesy of Blue Tip Energy)

In Vernon County, the thicker and more laterally continuous Upper Warner sandstone lies between 150 and 250 feet in depth with oil columns commonly between 20 and 40 feet. Upper Warner original oil in place, based on estimated average sand thickness and oil saturations in the distributive reservoir, is an impressive 19 million barrels per productive section (640 acres). Historical steam flood efficiencies of 60% yield recoverable oil at 11 million barrels per productive section.

New generation of activity

The cast of current active MOHO players includes U.S. and Canadian companies such as Gravis Oil Corp., Colt Energy Inc., Blue Tip Energy Management LLC and Palo Petroleum. Their work programs include delineation drilling and coring, new commercial steam flood projects, and experimental work with new technology.

Gravis Oil Corp. Gravis Oil (formerly MegaWest Energy Corp.) started two steam projects in 2008 with oil prices above $130 dollars per barrel, but intermittently produced then shut-in its projects after oil prices fell below $40. The largest project, Grassy Creek, was brought back online in 2011 following reorganization and an energized new management led by chief executive officer Tim Morrison. Gravis recently reported that Grassy Creek averaged 77 barrels of oil per day in April 2011 and production has been rising each month since the first of the year. Morrison reported that Gravis' forward strategy incorporates the use of modern technologies and deploying new tools to increase cost-effective production.

"Minimizing lifting costs and increasing recoverable reserves per net acre are the key drivers in our decision process to produce heavy oil economically," Morrison reported. "Utilizing advances in chemistry, real-time data measurement, drilling techniques and energy optimization contributes to lowering the per-barrel lifting cost versus traditional SAGD (steam-assisted gravity drainage) strategies. We are proving that these new efficiencies should allow us to remain profitable well below the current commodity price and are accelerating the exploitation process using modern chemistry and high-end technical DH thermal and pressure monitoring. We have also evaluated and optimized our drilling and completion strategies which significantly reduced the cost of current and future development."

The management and technical team have more than 125 years of collective oil and gas experience, combined, in both operational and financial aspects of the industry. Gravis believes this combination of the right talent will accelerate its results.

Colt Energy Inc./Blue Tip Energy Management LLC. Colt Energy and its partner, Blue Tip Energy, drilled 149 delineation wells at MOHO during the past two years with the majority of wells cored. The partners are the largest acreage-holder with more than 100,000 gross acres under lease. The first two steamflood projects started steam injection in the latter part of second-quarter 2011. Both are injecting in the Upper Warner sandstone. Colt and Blue Tip plan to have at least two additional steam flood projects operational by the end of the year.

Colt's journey to MOHO ironically began as the first generation of producers' ended. Owner Nick Powell bought Colt from the long-established Kansas and Missouri producer in the 1980s and he was searching for regional opportunities in Colt's base of operations when he became familiar with the early commercial steam floods. The company became adept in putting together large acreage positions with its traditional expertise as oil and gas developers. As Colt grew, it eventually hired John Amerman, former project manager for the Jones-Blair steam flood project, as its operations manager. Colt formulated a strategy to put together a sizable acreage position in MOHO as oil prices rebounded to capitalize on its in-house operational experience with heavy oil development. Powell also recognized the potential resource size and capital requirements of the project and brought in Blue Tip as partner. Blue Tip chief executive officer Rich DiClaudio says the resource potential and Colt’s experience as an effective operator convinced Blue Tip to partner with Colt.

"From the very beginning we saw the enormous production potential of Missouri heavy oil," DiClaudio says. "When combined with the very large, uniquely long-term, lease position and meaningful nearby heavy-oil refining capacity, it is an obvious world-class development opportunity right here in the USA. We knew that Colt had a great reputation for being a low-cost producer and, when pooled with our own in-house operating expertise, we recognized the exceptional opportunity. "

DiClaudio believes the initial steam flood start-ups will lead to a full-blown development program that could exceed 20,000 barrels of oil per day in the next five to 10 years. He explains that a steam flood project of multiple injection patterns that develops 12.5 acres at a total cost of less than $3.5 million and recovers 175,000 barrels makes it very competitive with the upper tier of resource-play wells with similar development costs and reserves. He further notes that the investment cited does not include the reduction of costs that historically follow large, continuous, manufacturing-type play developments.

Palo Petroleum Inc. Palo Petroleum takes a different direction over conventional steam floods in developing its heavy oil acreage in Vernon County with its continuous heavy oil production (CHOP) process. The process includes a dually completed horizontal well to simultaneously inject steam and produce heavy oil from a single wellbore. Palo president Jim Graham describes the process as designed by Frank J. Schuh.

"The CHOP process is intended to be an improvement on the SAGD method, which is highly successful in heavy oil recovery in Canada," Graham says. "Mr. Schuh was one of the early developers of horizontal drilling as we know it today. We expect that this introduction of horizontal technology, combined with steam at our Bushwhacker CHOP project, will improve the production rates and ultimate recoveries many-fold times over the previously experienced successes in Missouri with traditional steam floods. It is our anticipation that our exclusively licensed CHOP process will ultimately represent the introduction of disruptive technology for heavy oil recovery—not only in Missouri, but in other shallow, heavy oil areas throughout the U.S. and Canada."

Palo plans to develop the 30-well Bushwhacker project and at least two more prospects on its option acreage in Missouri. It has identified other prospective heavy oil areas for the CHOP process in other states, and it has held discussions with a large Canadian heavy oil producer that may lead to a joint venture in Canada.

Development technologies and next steps

Missouri University of Science and Technology supports technical research in the state’s effort to develop its natural resources. The Department of Geological Science and Engineering has participated in a number of research efforts to advance technologies and understanding of the Missouri heavy oil system.

Dr. Shari Dunn-Norman, associate professor, petroleum engineering, notes "that, historically, conventional steam flood has been the most effective enhanced oil recovery for this resource; however, other technologies in the core of the current activity may have cost-effective potential to improve recoveries."

Examples she cites include alkaline surfactants to reduce oil viscosity in formations with low pressures that preclude miscible gas injection, and a revisit of recent refinements made in fire-flood (in situ combustion) technology. Fire flooding uses heat to reduce viscosity and to crack high-molecular-weight hydrocarbons into smaller molecules. In addition, hydraulic mining used in Canadian oil sands development may have merit in the future to develop resources at depths too shallow—that is, less than 100 feet—for conventional steam floods.

In conclusion, as energy companies aggressively hunt the U.S. for large oil resources, the time warp of western Missouri's heavy oil play has ended. Under current technology and depths, the heart of the distributed heavy oil system lies in an approximately five mile by 20 mile corridor. Ultimately, one can envision that core producers will build sophisticated infrastructures to support a manufacturing process analogous to other large resource plays that are being developed across the U.S. and new or improved technologies will push the productive limits to shallower depths.

Contact the author David Nordt at dnordt@btoperating.com

References available on request.