NEW YORK (TheStreet) -- Plunging crude prices are not only hitting energy producers, but also high-cost oil- and gas-producing regions such as the Tuscaloosa Marine Shale, or TMS, in the southeastern U.S.
During the last few years, TMS, which is located beneath parts of Mississippi and Louisiana and which could hold about 7 billion barrels of oil reserves, has risen as the last major untapped shale oil-producing region of the U.S. When West Texas Intermediate crude prices were above $100 a barrel, which was less than five months ago, oil and gas producers were touting TMS as a region that could drive production growth.
For instance, Canada's Encana (ECA) , which owns 200,000 net acres at TMS, called it one of its "growth assets." Similarly, Halcon Resources (HK) , the largest TMS leaseholder with around 315,000 net acres, earmarked the property as one of its core assets. During an interview with TheStreet in August, Halcon spokesman Scott Zuehlke said that TMS will start making meaningful contributions to the company's production in the second half of 2015.
For Halcon, that is not going to happen, according to the most recent report from Daniel Katzenberg, an analyst at Robert W. Baird who does not own the stock. Last month, Halcon said that it will pull its rigs out from TMS in 2015, which is in stark contrast to its previous plan to double the number of rigs. The move came on the back of nearly 39% drop in WTI crude prices during the last three months to less than $60 a barrel, the lowest level in more than five years. The company will play the role of a spectator at TMS until oil prices rise.
Similarly, earlier this month, Goodrich Petroleum (GDP) , a small oil producer with a market capitalization of less than $250 million and with 306,000 net acres at TMS, slashed its 2015 capital-spending plan for TMS by 37%.
On the other hand, in an email to TheStreet, Encana spokesman Doug McIntyre said that there is "significant upside potential" at TMS. Historically, however, Encana hasn't made any big investments at TMS. In 2015, TMS, as well as two other regions, will get a total of less than 13% of Encana's annual capital budget.
The capital-spending cuts by Halcon and Goodrich, two of the largest players of TMS in terms of acreage, are spurred by the region's position as one of the most expensive places to drill for oil and gas in the U.S. According to various estimates, including from Tudor Pickering Holt and Bloomberg, TMS wells require WTI prices of about $80 a barrel to break even.
By comparison, North Dakota's Bakken shale formation and Colorado's Niobrara Shale would break even at between $65 and $75 a barrel. Some parts of Permian Basin in West Texas and Eagle Ford Shale in South Texas, on the other hand, are one of the most economical regions in the U.S. and are profitable even with oil at less than $60 a barrel.