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Why The Oklahoma Shale Boom Isn’t Taking Off

Just three years ago it was the new hot spot in U.S. shale, the “Permian Jr.”, and the place where many pinned their hopes for the next oil boom. Now, oil and gas companies are curbing their operations in the STACK/SCOOP plays in Oklahoma, some are selling, and there is little evidence of the enthusiasm from three years ago.

The low cost of production and high yields were among the factors that drove the rush to the STACK (Sooner Trend, Anadarko, Canadian, and Kingfisher) and SCOOP (South Central Oklahoma Oil Province) plays. Devon, Continental, and Marathon Oil were among the biggest players present there with the most ambitious plans. Now, Devon has cut its capex for the STACK/SCOOP area, and Continental and Marathon Oil have limited their operations to producing wells only with no exploration in their immediate plans, Reuters’ David French writes.

The root of the problem has turned out to be geological, which might be a little surprising given all the advancements in exploratory technology, but tells us that even with these advancements not all is certain. The rock formations have turned out to be a lot more complex than those in the Permian, making productive drilling a lot more challenging in some parts of the STACK/SCOOP.

“The SCOOP/STACK is not a traditional shale play, so when you think about developing it, there are a number of different rock types,” Denise Yee, VP of consultancy RS Energy Group, told Reuters. “As it’s so complex, the hydrocarbon mix changes across the play, and the oil window is limited.”

It seems there is a lot more gas than some oil drillers expected in the STACK/SCOOP and times are not too good for investing more in gas: the U.S. market is pretty well supplied and prices are low as the LNG boom has not yet taken off in full, providing an outlet for all the gas produced.

Another problem, Reuters’ French notes is the so-called “parent/child” well problem: when secondary wells produce less oil and gas than the primary ones. In light of this problem, it’s no wonder production prices are higher: the average breakeven in the STACK and the SCOOP formations since the start of 2018 has been US$53.15 for the STACK and US$54.53 for the SCOOP. To compare, last year, breakeven prices for horizontal wells of between 4,500 and 10,500 ft in the Permian ranged between US$48 and as little as US$21 per barrel, according to GlobalData. Related: Chinese Rare Earth Exports Tumble As Trade War Accelerates

Yet all of this does not mean E&Ps are leaving the STACK/SCOOP in droves, not yet, at least. On the contrary, some are making acquisitions there the largest recent one being Encana’s US$5.5-billion acquisition of Newfield Exploration as part of its strategy to focus on shale oil and gas both in the U.S. and Canada.

Another company, private equity-backed Red Wolf Natural Resources, bought 56,000 net acres in the STACK/SCOOP soon after it was set up this year, along with associated production. The assets, the company said, were close to existing production infrastructure.

So, it seems that although the favorable comparison with the star play, the Permian, was a little premature, the STACK/SCOOP area is not without its charms, even if they come at a higher breakeven price.

As another RS Energy analyst put it to Reuters, “The play is resetting expectations around what it is capable of, and while this won’t be painless, it will be better in the long term.”

By Irina Slav for Oilprice.com

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Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More

Comments

  • Chad Sweet - 17th Jun 2019 at 7:43pm:
    The break even point is not $53-54 in the Stack. Not sure where you got that info at. Many companies break even point is $38 to $45 and some are low $30's
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