Drilling in Oklahoma’s STACK expected to increase 46 percent

By Staff | June 16, 2017

A new study on Oklahoma’s STACK shale play forecasts a 46 percent increase this year in the number of wells drilled in the formation, a trend expected to continue into 2018.

According to the study, the number of wells drilled in the STACK will increase from 935 in 2016 to more than 1,350 wells in 2017. The Oklahoma Oil & Gas Drilling Outlook— conducted by The Freedonia Group, a Cleveland-based industry research firm—identifies several key trends in the STACK.

The study found that unique growth trends seen in the STACK from 2014 to 2016 are attributable to multiple factors. For example, substantial drilling activity in the formation didn’t begin until 2010 and wells didn’t reach sustainable levels until a transition from gas to oil wells occurred between 2011 and 2014. The STACK’s location near the Cushing hub—a major distribution center for oil and gas in the Midwest—gives it access to key infrastructure.

Dan Debelius, an analyst with The Freedonia Group, provided North American Shale with additional information on the study’s findings.

What are the breakeven costs in the STACK play? How do they compare to other Oklahoma plays?

We believe that in some of the most economical portions of the STACK that breakeven prices fall near $30 per barrel. This makes the STACK one of the most economical plays in the U.S., behind only certain core areas of the Permian Basin. Contributing to the low breakeven price are the STACK’s geology, which is characterized by multiple stacked layers of resource-bearing rocks, and low transportation costs, in part resulting from its proximity to Cushing, Oklahoma. The STACK seems to be the most promising play in the state. Outside of the STACK, the SCOOP is another promising play with formations like the Woodford and Springer shales.

How do breakeven costs in the STACK compare to the Permian in Texas and the Bakken in North Dakota?

It would appear that breakeven costs in the Permian Basin are the best in the U.S., given the amount of investment occurring in the past year—over $30 billion dollars in acreage transactions have occurred during that time span. The Bakken would likely fall behind the STACK in terms of favorable breakeven costs, but it is still a high-quality play.

In general, how do you see world oil prices trending in the next two years? What will be the main factors that influence them?

Currently we see prices averaging in the mid-$50s through 2018. The two most notable influences on the price will come from OPEC’s efforts to cut production—if the current agreement continues and how effective it is—and the level of production from unconventional oil in the U.S. Recently, OPEC announced a continued cut amongst member nations, but the price of oil has yet to react favorably. Now that unconventional oil in the U.S. is able to be produced at lower prices, it does not appear that production in the US will slow down. Subsequently, we don’t expect benchmark prices to exceed $60 in the near future.

When do you see oilfield services companies in Oklahoma beginning to raise prices again?

We believe prices have already started to increase as a result of the recent rebound in activity. One concern is a potential shortage of labor as employees who were laid off during the downturn may not return to the industry.

Has the export market opening up for U.S. crude created more opportunities for STACK producers?

Crude exports have begun to provide an important market for US oil producers, with the EIA reporting exports exceeding 1 million barrels per day for the first time ever in February. Also important is the emergence of liquefied natural gas (LNG) exports, which we expect will support domestic gas prices in the Gulf Coast region and translate to better wellhead prices for producers of associated gas.

What completion techniques are preferred by STACK producers?

Companies are still experimenting with well spacing, lateral lengths and the optimization of their completion designs.  Most seemed to have settled on proppant loading of over 2,000 pounds per foot. Some have cited success with zipper frack designs on multi-well pads.  To some extent, this reflects similar advancements in drilling and completion practices that have been seen across the U.S.