The Arkoma Woodford shale play, focused primarily in southeastern Oklahoma’s Hughes, Coal, Pittsburgh and Atoka counties, has seen a five-fold increase in production over the past two years to 550 million cubic feet (MMcf) per day. Approximately 800 horizontal wells have been drilled since 2005. Although smaller in geographic extent than the other major shale plays, the Woodford’s resource potential is still estimated to be more than 10 trillion cubic feet (Tcf).

Attractions and challenges. The Woodford has had more predictable results than other emerging shale plays and, although finding costs are not as low as in the other major shale plays, they continue to drop as the exploitation process improves. The play also features low operating costs and very little water production.

As with most plays, the current low natural gas prices are challenging the economics. Take-away capacity is constrained but should be mitigated by near-term projects, including the Midcontinent Express Pipeline and the Arkoma Connector Pipeline.

Geology. The Woodford shale is Upper Devonian/Lower Mississippian in age and is found at depths ranging from 6,000 to 14,000 feet. Shale thickness ranges from 120 feet to more than 220 feet. The Woodford is low in clay content (13%), and high in silica content (60% to 80%), with total organic carbon (TOC) from 3% to 10%. The rock is brittle and therefore tends to be naturally fractured.

Operations and technology. Horizontal laterals are generally drilled from 2,500 feet to more than 4,000 feet and then treated with five- to seven-stage slickwater fracs. Well costs have averaged $4 million to $6 million, yielding estimated ultimate recoveries (EURs) of 2.7 billion to 5.3 billion cubic feet (Bcf).

Reductions in finding costs have been driven by extended reach horizontals, pad drilling, advances in completion technologies and more recently, decreases in drilling and service costs.

In 2009, Newfield Exploration Co. anticipates finding costs will drop to $1.25 to $1.50 per thousand cubic feet (Mcf). Wells are currently drilled on 80-acre spacing. Newfield is testing 40- and 20-acre infill drilling; results indicate only a 25% reduction in EUR from 5.3 to 4 Bcf per well.

Top players. Since 2003, Newfield has been the major operator and driver of the play. Today, Newfield operates almost a third of the active rigs, more than a third of the current horizontal wells, and produces roughly a third of the play’s total production.

Other significant players include Antero Resources, Devon Energy, PetroQuest, St. Mary Land & Ex­ploration, XTO Energy and BP Plc, which entered the play in mid-2008 with the acquisition of 90,000 net acres and 50 million cubic feet per day from Chesapeake Energy. The transaction represented an exit from the Arkoma Woodford for Chesapeake.

Although the area is generally considered to be fairly well consolidated, multiple small producers still hold positions. As in the other shale plays, those operators without deep pockets are expected to be sellers given the high cost of development and the current low natural gas price environment.

Transaction activity. Compared to prior years, 2008 was a relatively active year for transactions in the Woodford. XTO aggregated approximately $200 million of acquisitions in the Woodford throughout 2008. BP made headlines in July with the acquisition of Chesa­peake’s Woodford interests for $1.75 billion. The transaction implied a resource metric of $0.88 per Mcf, setting a new valuation bar for the Woodford.

In October, as commodity prices fell and most deals fell apart, Linn Energy conducted the sale of its Woodford deep rights for $202 million. Given a protracted period of low natural gas prices, several small operators in the play may look to monetize production and acreage that they will likely be unable to develop.

Woodford outside Arkoma. The Woodford shale is productive beyond the Arkoma Basin and has been found in various other regions, including the Anadarko Basin, the Ardmore Basin and West Texas.

Some producers, including Cimarex, Devon, Marathon and Questar, have been drilling in western Oklahoma’s Canadian County in the Anadarko Basin. Although deeper and more costly to drill, these developments have yielded higher gas in place than in the Arkoma.

In the Ardmore Basin, select parties such as Antero and Range Resources are testing the play and have recently drilled horizontal wells. In mid-2008, Talisman Energy entered into a farm-in agreement to pursue West Texas Barnett and Woodford shales.

—Grant Farn and Bobby Stillwell (713-222-0546), Scotia Waterous