OKLAHOMA CITY—The unconventional Midcontinent plays of Oklahoma offer an excellent combination of attractive geology, strong regulatory and community support, and good infrastructure, according to the executive who manages one of the Sooner State’s biggest oil and gas producers.
Wade Hutchings, regional vice president of Midcontinent assets for Marathon Oil Corp. (NYSE: MRO), told attendees at Hart Energy’s fourth annual DUG Midcontinent conference that the state “is a top priority for Marathon” and added the firm is increasing its Oklahoma-focused capex due to continuing success in the Stack and Scoop plays.
“This is an exciting and transformative time for Marathon in Oklahoma,” Hutchings said in his Oct. 27 opening keynote address. He noted Marathon has been drilling and producing wells in Oklahoma for more than a century “and we expect to be here for a long time to come.”
Following its acquisition of PayRock Energy Holdings LLC in June for $888 million, Marathon now has interests in more than 200,000 surface acres in the Stack play. Some 90% of that acreage is in the play’s oil window. The company operates more than 60% of that acreage along with an average 70% working interest.
Marathon’s proved and probable reserves in Oklahoma have grown by more than five times in recent years to more than 2 billion BOE, he said. “The Stack is one of the best oil plays in the U.S.” Hutchings said, adding that it “checks all of the boxes” for Marathon and other producers.
A crucial question for the company now is how to make the most profitable use of that big acreage block, he said. To accomplish that goal, Marathon enjoys a “rich, internal data set” on the Stack, Scoop and other plays and finding the best technology to employ that information is paramount. Marathon has access to 3,700 square miles of 3-D seismic, composed of 2,400 square miles in the Stack and 1,300 square miles in the Scoop, he said.
But Hutchings noted the unconventional Midcontinent plays’ complex and strong collaboration among multiple disciplines—seismic, geology, drilling, completion, etc.—is vital. To encourage cross-discipline collaboration, Marathon has created a “war room” where specialists can meet and discuss options on locating, drilling and completing each well.
“We ask, ‘what works?’ to build what Marathon calls a reservoir quality index to optimize well performance, Hutchings said. He added that he sees “a fast pace of stimulation evolution relative to earlier shale plays” in the company’s Meramec operations within the Stack play, which has led to higher initial production rates and increased EURs for wells. These efforts have improved Meramec well internal rates of return to as high as 60% to 80%, even at $50/barrel WTI prices, he said.
“And innovation takes partners,” he added, noting Marathon involves its service providers in the collaboration effort to reduce drilling costs and improve well performance.
“We see considerable upside in Oklahoma through the work of our team players, some of whom have years of experience in the Bakken, Eagle Ford and other unconventional plays and we are fortunate to have them,” he added.
Marathon’s initial 2016 capex of $1.4 billion allocated 14% of the budget to Oklahoma’s unconventional plays. The company later cut its overall budget slightly and that had the net effect of increasing the percentage of capex focused on Oklahoma, Hutchings said. For 2017, capital allocation priorities for the Stack play, in particular, will focus first on increasing the company’s leasehold in the play, then delineation and downspacing, to create high-return opportunities.
Industrywide, drilling in the Stack has picked up with the improvement in commodity prices over recent months, he said, noting that currently 28 rigs are running in the play, compared to a nadir of 16 rigs making hole in June. Marathon has three rigs currently working in the Stack.
Hutchings noted the Sooner State’s strong regulatory and community support for the oil and gas industry is a significant positive. He said 2011 legislation intended to encourage development of the shale plays was an excellent move, but added refinements to the law need to be made.
“The state needs to expand its shale development to make Oklahoma even more attractive. Everybody will benefit,” he said. He called for continuing “clarity” in regulatory oversight of the industry by the Oklahoma Corporation Commission.
He stressed that Marathon remains “bullish on Oklahoma.” Although the state has produced oil and gas for 120 years, “its energy resources have never been as deep and diverse as they are today.”
Paul Hart can be reached at pdhart@hartenergy.com.
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