Technology continues to change the landscape of the oil and gas industry. Horizontal drilling and multistage hydraulic fracturing are no exception, enabling operators to access previously uneconomic or poor-quality reservoirs. High oil prices have accelerated the expansion of this technology. One standout area is the Anadarko Basin, where an abundance of liquids-rich targets are providing the ideal playground for this evolution in technology.
The Anadarko Basin stretches across the Texas Panhandle into northwestern Oklahoma. It is the deepest sedimentary basin in the U.S. and offers a wealth of stacked pay, boasting nearly 23 billion barrels of oil equivalent of cumulative oil and gas production. Driven by industry's desire for liquids-weighted production, this area has seen a flurry of horizontal drilling and M&A transactions.
These latest endeavors are not just in shale plays such as the Woodford, but also in the numerous liquids-rich conventional reservoirs that are now being drilled horizontally. Examples include plays such as the Granite Wash, Mississippi Lime and Cleveland.
Production. Liquids production in the Anadarko Basin has quietly grown over the previous few years. For the past two decades, oil production steadily declined at about 7% a year, until 2006, when increasing oil prices drove a reversal to an annual increase of 8%.
The number of total horizontal wells in the basin expanded from some 1,000 in 2006 to about 3,500 in 2011, resulting in increased production from approximately 3,400 barrels per day in 2006 to 96,000 barrels daily in 2011.
Horizontal gas production, including natural gas liquids, increased over 1.4 billion cubic feet per day during that same time period, offsetting the decline caused by falling gas prices.
The primary contributors to this surge in horizontal liquids production include the Granite Wash (multiple intervals), Cleveland, Woodford, Mississippian, Marmaton and Tonkawa.
Operators. Many well-established oil and gas companies are loading up on liquids and defining a path away from gas. Several operate in the Anadarko Basin, and for good reason, as the area has plenty of liquids-rich targets. Linn Energy has a large inventory of low-risk, liquids-weighted development opportunities company-wide, which in the Anadarko Basin include the Granite Wash and Cleveland. Apache Corp. has essentially doubled its position in this region with its recent acquisition of Cordillera Energy Partners III LLC, and is focusing on the Granite Wash (Hogshooter interval), Tonkawa, Cleveland and Marmaton.
Forest Oil has identified nearly a dozen commercial intervals within its Texas Panhandle position. Chesapeake Energy, which holds the largest land position in the Anadarko Basin, has aggressively shifted its future capital to liquids-rich plays. Other companies in the region include SandRidge Energy, Chevron, Devon Energy, KKR Group, SM Energy, and QEP Resources.
Transactions. A large number of blockbuster deals are emerging from the Anadarko Basin with a focus on liquids. Thus far in 2012, more than $5 billion in transaction value has been announced in the liquids-rich areas.
Apache's acquisition of EnCapbacked Cordillera for $3.1 billion added 312,000 net acres in the liquids-weighted Granite Wash, Tonkawa, Cleveland and Marmaton plays. Chesapeake raised some $2 billion from its liquids-rich assets in the Anadarko Basin via two alternative financing transactions. In the Granite Wash, Chesapeake completed a $755 million volumetric production payment (VPP) to Morgan Stanley. The company also sold $1.25 billion of preferred shares from its new Oklahoma unconventional liquids shale unit, CHK Cleveland Tonkawa LLC, and a 3.75% overriding royalty interest in its first 1,000 new wells to be drilled, to a consortium led by GSO Capital.
Last year, Linn Energy spent over half of its 2011 capex in the region acquiring positions in the Cleveland and Granite Wash via two transactions totaling $820 million. Elsewhere, international companies such as Sinopec, Repsol and Atinum acquired positions in the Mississippian play through joint ventures.
—Tim Pish and Rebekah Killian, Scotiabank, 713-437-5048
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