Oilmen hope to make new history at Spindletop

Spindletop.

The name evokes an oil discovery that made history. When a well piercing the salt dome near Beaumont first gushed in 1901, it introduced a cheap supply of commercial energy that transformed the oil industry and American life.

More than 100 years later, the oilmen are back at Spindletop, calculating how to extract even more oil from deeper levels at the hallowed site, which they believe may contain millions more barrels of crude.

Two exploration companies are working together to finance and build a well at Spindletop, based on new data that allows them to better predict where profitable pockets of oil and gas may be buried.

The team is motivated by the adage that the best place to look for oil is where it has already been found.

“Spindletop gave rise to some of the largest oil and gas companies that are still around today,” said Mark Wixom, vice president of Salt Lake City-based International Petroleum, a 50 percent investor in the project, along with Bakersfield, Calif.-based E&B Natural Resources. “We could be the people to finish the next chapter of Spindletop. We think the book’s not done yet.”

Spindletop was named for the shape of a hill that rose on the coastal plain, pushed up over eons by an underground salt dome.

In 1901, self-trained geologist Patillo Higgins successfully proved his theorythat oil lay under that hill. Since then geologists have learned that salt domes often have large pools of oil trapped along their edges.

But the Spindletop pioneers didn’t know the full depth of the oil-rich formation called reservoir rock, and the technology for finding out didn’t exist for decades after oil gushed there in 1901.

In the 1990s, however, aided by new methods of collecting data, geologists found oil north of Spindle­top at a deeper level, called the Yegua Formation. The formation, a layer of rock and sand that stretches along the Gulf Coast about 11,000 feet to 17,000 feet beneath the earth’s surface, has become one of the most active conventional drilling areas in the United States.

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But anecdotal wisdom held that the oil-rich sand didn’t extend to Spindletop.

In 2000, a team of independent geologists – Bill Whaling, Craig Gentry, Leo Newport and Alan Balser – decided to revisit a question people still asked in Beaumont: Is there more oil at Spindletop?

Previous production there peaked in 1927 at 21 million barrels, according to the Texas State Historical Association.

The four spent more than $5 million on relatively new 3-D seismic data depicting the geology beneath a 7-square-mile region around Spindletop, and discovered evidence of the Yegua reservoir rock.

Analyzing the depths

The ongoing venture, which bought out the original geologists, has spent a decade analyzing and interpreting the data, trying to understand what the map of subterranean geography reveals.

“It is straightforward to make a map,” said Chet Pohle, a geophysicist for E&B Natural Resources. “What isn’t straightforward is where your sand or hydrocarbon reservoirs will be. The data is like a giant three dimensional puzzle that you have to figure out. You have to make predictions, and that’s what takes the time.”

Based on initial interpretations of the seismic data, an earlier investor drilled a well next to the salt dome in 2003 and found indications of Yegua sand. But the well hit the salt dome itself, making it unusable.

E&B joined the project in 2007 and drilled a second well.

The drilling resulted in three discoveries, proving that reservoir sands containing oil and gas are present at the Yegua level.

But the well was less productive than investors hoped because it encountered faults near Spindletop’s salt dome.

Faults are disruptions in reservoir rock that essentially divide it into small, uneconomical reservoirs. Identifying possible fault lines is a key part of the site selection process.

Possible cost: $8 million

E&B and International Petroleum hope to benefit from the additional data gathered from that well, proposing to drill a little farther from the salt dome to avoid the faults that can sap production.

“You need to have a big enough area to produce, to ever hope to make your money back,” said Brian Kalinec, a consulting geophysicist for International Petroleum. “I thought because of the complexity of the salt dome, you would have a better chance of identifying opportunities a little bit farther away.”

The team believes that the combination of the seismic dataand the experience with the two earlier wells have enabled them to identify a location close enough to the salt dome for resource rock to exist, but far enough away to avoid the faults.

The team will present its strategy Thursday at the NAPE convention in Houston – an annual swap meet, formerly called the North American Prospect Expo, for buying and selling oil properties and attracting investors. They’re seeking additional participants to help finance a Spindletop well that could cost as much as $8 million.

“We have been able to figure out a story that makes good geologic sense,” Kalinec said. “All the geological and geophysical pieces fit together and support the story. That is a real key thing in any prospect – and it makes it easier to present, because it presents itself.”

They also presented the proposal last year at the annual NAPE event, but investors raised concerns about faults. Since then the team has fine-tuned its analysis and interpretation of the data.

“We have addressed the issue of where we believe the potential pay sands are, so we have turned our efforts into better highlighting where we think the faulting will occur,” Kalinec said.

‘Have to pay your dues’

The team also has to convince investors that the well would be able to make money.

“Entrepreneurs haven’t always thought through well enough the actual economics of how to make a well profitable,” said Carl Tricoli, a managing partner at Denham Capital, who is attending the Houston conference in search of potential investments.

“You may be producing all this oil, but are you producing it profitably? The No. 1 reason people don’t get financing is because the economics don’t justify it,” Tricoli noted.

The team is watching the economics closely as well. If successful, the well could generate enough revenue to become profitable within months and could produce for several years.

But each partner has invested millions of dollars already. And while their hunches are based on decades of experience, all are mindful of the complexity of the salt dome, and the risk the project won’t be profitable.

“It took Patillo Higgins seven tries to get it in the shallower region,” said Bud Tippens, director of land for E&B Natural Resources, recalling the Spindletop pioneer. “You have to pay your dues and have your failures, then have the perseverance to make sure you don’t quit. We know the sand’s there – we found it. We’ve just got to find it in a bigger tank.”