The Stack Comes Of Age

NEW ORLEANS—It’s all about the Stack, Jack.

The continuing expansion of unconventional activity in the Anadarko Basin is entering a new phase as operators at Scotia Howard Weil’s annual energy conference outlined plans to devote scarce 2016 capital spending toward optimization of the latest domestic “name” play.

Stack is an acronym coined by Newfield Exploration Inc. (NYSE: NFX) as an internal shorthand reference to Sooner Trend and Canadian and Kingfisher counties. The acronym, which refers to a region west of Oklahoma City, was made public in October 2013 when Newfield announced its Mississippian-aged Meramec discovery.

Although Newfield publicized the Stack, Continental Resources Inc. (NYSE: CLR) reportedly drilled the area’s first Meramec well in 2008.

Owing to the idiosyncrasy in state data at the Oklahoma Corporation Commission, evidence of the Stack rested comfortably below the radar until Newfield publicly announced its existence as a liquids-rich target following a 70,000-acre acquisition in October 2013.

Newfield drilled its first Stack well in October 2011 and coyly alluded to a $300 million Anadarko Basin assessment program in early 2012 before general knowledge of the Mississippian-aged targets spread across the industry.

Multiple Scotia Howard Weil presenters pointed to meaningful expansionary efforts in the Stack, making the Stack the “it” play at this year’s conference.

David A Hager, CEO of Devon Energy Corp. (NYSE: DVN), was effusive in Stack praise, noting it was a “world-class platform for Devon.”

“I can tell you, with the acreage we’ve added with Felix, we are very confident this is the economic heart of the play,” Hager said, referring to the $1.9 billion acquisition of privately-held Felix Energy LLC in December. Those properties graded out to Permian Basin-style stacked pay pricing at more than $23,000 per acre.

RELATED: Core Overload? Devon’s Powder River, Anadarko Deals Knock Back Stock

“There are a lot of factors,” Hager told conference attendees about Devon’s expanding Stack potential. “There is the amount of overpressure you have, the quality of the reservoir, the cost to drill a well, the amount of gas compared to the amount of oil. When you put every factor together, the best economics in this play—we’ve got it. We’ve identified more than 5,000 undrilled locations. About 1,600 are risked Meramec locations and we expect this to expand over time.”

The Oklahoma City-based independent made the Stack a central part of its Scotia Howard Weil presentation, citing 430,000 net surface acres prospective for the play after adding the Felix acquisition to its legacy acreage from the Cana Woodford. Cana is shorthand for Canadian County, Okla.—the “C” in the Stack acronym.

Devon cites a resource potential of 2 billion barrels of oil equivalent (Bboe) and will allocate $325 million of its $1 billion 2016 spending on a four-rig program delineating the Stack’s volatile oil window.

The company previously announced four Meramec wells with 30-day IP rates averaging 1,500 barrels of oil, grading out to 48% crude. The company has boosted Stack production from 9 Mboe/d to 14 Mboe/d since the Felix acquisition closed in January.

Hager said Devon will evaluate three potential landing zones in the upper Meramec as well as staggered spacing tests on a program designed for eight wells per section.

Indeed, the Stack sounds well on its way to transitioning from delineation to optimization in 2016.

Continental Resources’ CFO John Hurt minced few words in describing the company’s excitement about the Stack.

“Let me just leave you with this brief snippet,” Hurt told Scotia Howard Weil attendees. “We believe this asset has the potential to add 25% to our net unrisked resource potential for the company. When you step back and think about what that means in size and scale in terms of our holdings in the Bakken and the Scoop, it is a very large, very significant asset to us and something we are very excited about.”

The Oklahoma City-based independent will spend $142 million on a four- or five-rig program targeting 15 gross wells on its 155,000 net acres in the western over-pressured zone of the Stack.

Most Stack drilling has occurred east of the normally pressured line to date. Hurt directly addressed criticism that the play was gassier moving west.

He outlined the company’s December announcements on three Stack tests, including the Boden, which had an IP rate of 3,508 boe/d, the Compton at 2,547 boe/d and the Blurton at 2,328 boe/d.

“The IP on the Boden was 3,500 boe/d,” Hurt said. “But it was 1,000 barrels of oil per day. OK, it’s 28-30% oil, but it was 1,000 barrels of oil per day. I’ll take the incremental gas. To us, it was an oil well. That was a 16-mile step out from the nearest adjacent [Stack] well.”

According to Continental’s Scotia Howard Weil presentation, type curves for 9,800-foot laterals suggest an estimated ultimate recovery of 980,000 barrels of oil and 3.795 million cubic feet (MMcf) of natural gas at a completed cost per well of $10 million.

Tulsa, Okla.-based independent Newfield Exploration was the first to tout Stack potential in 2013. The company will spend 50% of its estimated $650 million 2016 capex underwriting a three- to four-rig Stack drilling program to boost its HBP acreage to 65% by year-end 2016.

The company is pursuing longer laterals as it moves through its acreage capture program but will drill 20 5,000-foot laterals in 2016 to nail down lease obligations.

Newfield CEO Lee Boothby identified 2 billion barrels in un-risked resources for its Stack holdings, noting the company will soon move into full field development.

The Stack will also lead 2016 capital spending in Oklahoma for Houston-based Marathon Oil Corp. (NYSE: MRO). Marathon plans to delineate the condensate and volatile oil window and optimize stimulation and flowback techniques while moving 70% of its leasehold to HPB by year-end 2016.

The company added 12,000 Stack acres in the over-pressured zone in Blaine County, Okla., for less than $3,000 an acre in 2015.

According to Marathon’s Scotia Howard Weil presentation, the company has progressed along the learning curve with spud to total depth times down 35% in 2015 with a corresponding decrease of 25% in completed well costs.

Marathon is targeting a further reduction of 15% in completed well costs for its Stack sortie in 2016.

Management at Oklahoma City-based Chesapeake Energy Corp. (NYSE: CHK) also identified attractive economics in the Stack. The company will allocate 22% of its 2016 spending to a two-rig appraisal and delineation program on acreage overlying the Meramec and Oswego formations.

“This is the most undervalued asset in Chesapeake’s portfolio,” CEO Doug Lawler told Scotia Howard Weil attendees. “It is one that we don’t talk enough about. It is a high quality asset that will continue to attract capital in 2016 and beyond.”

Meanwhile Cimarex Energy Inc. (NYSE: XEC) COO Joe Albi told Scotia Howard Weil attendees that the company drilled 19 Meramec wells with an average IP of 8.4 MMcf/d. Seventeen of the wells incorporated one-mile laterals.

In 2016, Cimarex will explore where to land laterals in the 500-foot thick Meramec underlying its acreage in the over-pressurized zone. It will also work on well spacing, including testing both the Meramec and the Woodford Shale.

Stack Economics

According to data cited in Continental’s Scotia Howard Weil presentation, the Stack exhibits a breakeven price of $40. This places the Stack’s economics on par with oil plays such as the Bakken core, the Denver-Julesburg Wattenberg, the Midland Basin’s Spraberry and Wolfcamp formation and the Scoop/Springer Shale. Only the liquids-rich Scoop exhibits a lower breakeven price.

Newfield’s numbers, inclusive of drilling, completion, facilities and infrastructure, suggest a 20% pre-tax rate of return at $40 oil and a $7.5 million well cost. That rate improves to 60% at $55 oil and a $6 million gross completed well cost.

Those costs are expected to track reductions that have occurred in other unconventional plays.

Newfield Exploration’s extended laterals currently cost $7.4 million, down 30% since peak oil prices and high service costs in 2014. The company is targeting $6 million per well by year-end 2016.

Newfield recently signed an agreement to move Stack oil via pipeline to Cushing, Okla., which should provide a 50% improvement in differential pricing to WTI Cushing.

Chesapeake completed a recent Stack test for $6 million, or about $2 million lower than the next best-completed well cost in the industry. Lawler cited breakeven prices at $31 to $33 per barrel, noting this threshold could be lowered further as the play develops.

Lateral Landing

Industry efforts at optimization are seeking insight into the prospectivity of the upper and lower Meramec within the Stack, which can exceed 1,000 feet in thickness in the eastern portion of the play.

An apparent key to some of the stellar IPs cited for the play center around laterals approaching 10,000 feet.

To date, Newfield has drilled 54 Stack wells in the normally pressured zone to the northeast with an average lateral length of 9,944 feet. Those wells produced an average IP of 1,122 boe/d, 68% oil and 83% total liquids.

Newfield has published a 950,000-barrel type curve for its portfolio of long-lateral Stack wells. The company has implemented enhanced completion techniques but sees further upside with a better understanding of lateral placement, emerging stimulation optimization technologies and improved flowback management.

Further west, industry efforts are focusing on both vertical and horizontal lateral spacing—stack and stagger—and joint development of the Mississippian-aged Meramec and underlying Devonian-aged Woodford Shale.

The Scotia Howard Weil conference is in its 44th year. The gathering has a knack for capturing the tone of the industry as it gears up for the upcoming year.

The movement in energy equity prices around the time of the conference is often described as a Howard Weil effect. Whether legend or truth, that observation reflects Scotia Howard Weil’s symbolic role as spring break in New Orleans for the energy investment class—the “one on one percenters.”

The conference concluded March 23.

Richard Mason can be reached at rmason@hartenergy.com.