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Shale Drillers Head North As The Permian Fills Up

Permian

Just as the Permian Basin is showing some wear and tear, there is growing interest in a separate shale play to the Permian’s north.

The Anadarko shale region, located mostly in Oklahoma, has seen a sharp increase in investment and drilling activity in recent years. The expanding presence of shale players in the Anadarko has resulted in the EIA including the region in its monthly Drilling Productivity Report alongside more well-known places such as the Permian, Eagle Ford and the Bakken.

(Click to enlarge)

(Click to enlarge)

The Anadarko produces more than 450,000 barrels of oil per day, but the region is increasingly becoming known for its surging natural gas production, which is set to top 6 billion cubic feet per day (bcf/d) in September, according to the EIA.

The EIA noted in its DPR that the Anadarko is second only to the Permian Basin in the number of active rigs – the Anadarko had 129 as of July, while the Permian had 373. The Anadarko region is “well-established,” the EIA says, but improved drilling and completion technology has led to a resurgence in interest for the region. The shale layers in the Anadarko tend to be rather deep, but also thicker than in the Bakken, for example.

The region is comprised largely of the STACK (Sooner Trend Anadarko Canadian and Kingfisher) and the SCOOP (South Central Oklahoma Oil Province) plays, two areas that have seen a surge of investment from shale E&Ps in the past few years. Related: Oil Prices Boosted By String Of Bullish News

Rising interest in the Anadarko comes as the market for oil in the Permian is starting to look a little frothy, with high land prices, a shortage of oilfield services, and some production hiccups.

Another important takeaway from the inclusion of the Anadarko in the EIA’s monthly roundup is that natural gas production continues to rise in places that are home to interest from oil producers. Shale producers tend to extract natural gas as a byproduct when targeting oil, and almost half of the U.S.’ natural gas production is now coming from oil plays, according to Bloomberg.

“This is again telling us why we are in a perpetual bear market in natty gas,” Stephen Schork, president of Schork Group Inc., a consulting group in Villanova, Pennsylvania, told Bloomberg in an interview. “We are finding more and more gas. It’s giving the bears more ammo.” Gas production is rising quickly, and not just in the Anadarko. Output in September is expected to jump across all major shale basins, including the Marcellus, Bakken, Eagle Ford, Haynesville, Permian and Niobrara. That will keep a lid on natural gas prices.

In addition, the Anadarko offers shale companies another option for oil and gas exploration if they find the Permian a little too crowded. The Wall Street Journal recently profiled Jim Hackett, the former CEO of Anadarko Petroleum, who has set up a new company that will target the STACK play. The SCOOP and STACK have the best well economics out of any other shale basin after the Permian, according to RBN Energy.

Hackett’s company, Silver Run Acquisition Corp. II, is taking over two other STACK-based companies, and the combined outfit will be called Alta Mesa Resources Inc., with a market cap of $3.8 billion. The efforts of Hackett mark a major investment – and a large bet – on the STACK play. “There are one or two careers worth of opportunities just in the Stack,” Hackett told the WSJ in mid-August. Intriguingly, Hackett says the STACK is attractive because “the Permian Basin has been picked over pretty well.” Related: Oil Prices Climb As Oil Rig Count Drops

Alta Mesa will ramp up drilling in the STACK over the next year and a half while also investing in pipelines, storage facilities and gas processing plants, according to the WSJ. Hackett says the company’s wells will have a breakeven price of around $25 per barrel.

If true, that is a remarkable figure given the fact that so many shale companies are still burning through cash with oil prices at $50 per barrel. While some companies are doing well, the shale industry in the aggregate is still struggling to turn a profit. The news that Oklahoma’s Anadarko region is suddenly a hot item comes just as companies are starting to spurn the Permian, which has suffered from sky-high land prices and a crowded playing field.

By Nick Cunningham of Oilprice.com

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