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First new oil wells in years being drilled in shale region

An Australian company is drilling new wells in an oil formation that straddles southwest Mississippi and southeast Louisiana, the first new wells drilled in about three years, after a crash in oil prices dried up activity.

Australis Oil & Gas Ltd. announced earlier this month that it had started drilling the first of at least six planned wells near Gillsburg, Mississippi.

The company bought 81,000 acres (32,800 hectares ) of leases in the region in 2016 and 2017, adding to an interest it already owned.

The company says it picked well sites in the most productive and proven part of the Tuscaloosa Marine Shale. It says it plans to spend $43 million in borrowed money on drilling, which would be an average well price of about $7 million, less than the $10 million-plus that was the common cost of a well in the region during an earlier burst of drilling.

Australis says it’s trying to prove it can drill more cheaply but still equal the oil production of those earlier wells. The company says it should be ready to report on how the first two new wells are producing by March. Like in other regions, the rig will drill a long well running horizontal to the surface of the ground in an oil-bearing rock layer and then workers will pump in fluid to break open, or fracture, the layer, allowing oil to come out.

The company says a good performance could boost the value of its acreage, which it says has 350 possible well locations in the core region of the Tuscaloosa Marine Shale. The company has said its goal is to sell all or part of its holdings at a windfall once it proves their value. The founders successfully pursued the same strategy in the Eagle Ford region of Texas.

The new drilling has come as the price of a barrel of oil has risen above $70 at points in recent weeks, the highest price since 2014. That’s about the price level that the other major operator in the field, Houston-based Goodrich Petroleum, said last year is needed to make drilling profitable. Goodrich is currently focused on drilling natural gas wells in northwest Louisiana and east Texas.

Australis says it has hired a Nabors Industries drilling rig to drill up to six wells, with an option for more. The company plans to drill a pair of wells from each location, cutting expenses while starting production in two separate leases. Once a well is drilled in a lease unit, the company has secured rights for as long as the well produces. Otherwise, a lease might expire.

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