Despite the downturn in commodity prices, operators and other prospective investors have demonstrated a notable interest in the Scoop and Stack regions of the Anadarko Basin in Oklahoma. The Stack, with an overpressured hot spot, has yielded some eye-popping results. These include some of the highest oil well 30-day initial production (IP) rates in the country.
Stratas Advisors currently forecasts WTI to range between approximately $50 and $60/bbl through the end of 2017. At those prices, and all else being equal, we believe that this area will continue to attract investment. The Stack has consistently generated above-average IP data, and most industry participants believe 2016 results will continue to impress.
Wells targeting the various reservoirs within these formations tend to exhibit a slower decline pattern on average, yielding a steadier flow for the first six to 12 months of the well’s life. Decline patterns seen within the region also exhibit large estimated ultimate recoveries (EURs) when coupled with higher starting points. New operators to the region are looking to optimize well designs to perpetuate these results.
Using results from 162 wells that were drilled within the Stack in 2014 and 2015, we analyzed how key operators compare. Of particular interest was Newfield Exploration Co., which has drilled some of the longest lateral lengths in the area, averaging 10,000 feet. Devon Energy Corp. and Felix Energy LLC drilled a few laterals at similar lengths, but the majority of the wells we analyzed had more modest lengths, ranging between 4,000 and 5,000 feet.
The Stack boasts some of the larger 30-day IP rates in the U.S. and provides generous economic returns for operators.
There have been significant successes in terms of IP rates and expected EURs. Most of the wells drilled within the Stack posted 30-day IP rates between 200 and 1,000 barrels of oil equivalent per day (boe/d), and the associated EURs ranged between 200 and 1,000 Mboe. Newfield has drilled numerous wells that fall outside of this range, and it has been able to achieve much higher production results.
The median Newfield well exhibited an IP of just under 0.9 Mboe/d, with resulting median EURs just under 590 Mboe. Newfield was able to drill a number of wells, predominantly in Kingfisher and Canadian counties, that produce at rates far in excess of what its competitors were able to accomplish. The average EUR was over 900 Mboe. The large spread between the median and the average highlights the existence of a number of significantly larger wells in its inventory.
Operators in the Stack have been able to capitalize on decreasing service costs and better production results, posting NPV-10 estimates at, or below, $50/bbl. As part of our analysis, we calculated the breakevens for the aforementioned 162 wells using an average well cost of $6.5 million. We then ranked and averaged the top two-thirds of the wells drilled.
The three top operators were Newfield, Devon/Felix, and PayRock Energy Holdings LLC (acquired by Marathon Oil Corp. in June of this year). All showed positive economics at WTI prices below $45/bbl for most of their activity. When considering all wells drilled, and weighting the results equally, the average breakeven rose considerably, with only one company, PayRock, showing positive results below $50. Given the results of the top-tier wells, positive economics should be easily obtained on a total campaign level for at least the top three companies.
With further delineation and optimization of completion techniques, these operators are likely to continue to drive down costs and put more pressure on breakeven prices.
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