Of the majority of folks in the oil and gas industry looking toward Oklahoma these days, you’d be hard-pressed to find one that doesn’t think of the SCOOP and STACK plays first. Most major E&P companies invested in the SCOOP and STACK in central Oklahoma are starting to step out toward the fringes of these plays in order to increase their proved undeveloped (PUD) assets. While drilling techniques have improved over recent years and drill and complete (D&C) costs have fallen, acreage costs have started to skyrocket over this same time period in the SCOOP and STACK. This begs the question, where is everyone looking to invest next in Oklahoma?
Figure 1: Drillinginfo activity heat map of leasing in the last 90 days. This heat map highlights an area centered around Hughes County, where most of the leasing in the Arkoma Basin has been centered.
According to recent activity, the Arkoma Basin appears to be the next big hotspot in Oklahoma, with the majority of leasing and permitting centered around Hughes County, as seen in Figure 1. There have been a total of 4,154 instruments recorded in the last 180 days centered around Hughes County, which represents an average royalty interest of ~19.1%. Along with Continental’s large sale last month to Corterra Energy, several E&Ps have taken acreage in the last 180 days in the Arkoma including Arkoma Energy, Calyx Energy, Continental Resources, and Silver Creek O&G, to name a few (Figure 3).
While the SCOOP and STACK trends have cooled down in recent months (Figure 2), activity in the Arkoma has continued to increase. There are various reasons for the increase in activity including lower dollar/acre costs, lower drilling and completion costs, and proven historical production.
Figure 2: Leases filed in the SCOOP and STACK over the last 12 months. The chart on the right-hand side shows leasing has cooled over the last couple of months in these plays.
Figure 3: Map depicting leases with a record date within the last 180 days colored by grantee alias. The comparative group charts represent the top 10 operators by active permit count and top 10 grantees by instrument count. From the map and charts, you can see there are several major brokerage firms acquiring acreage in the Arkoma, with the largest of these being Stephens Land Services. Typically, these larger brokerage firms are contracted by major E&Ps to buy up acreage on their behalf.
One of the key drivers for lower drilling and completion costs in the Arkoma is the depth of formations being targeted by operators. The dominant producing formation in the Arkoma Basin of late is the Woodford Shale, which can be as shallow as ~4,500 feet (Figure 4). The shallow depth of the Woodford Shale, and the corresponding common sources of supply, lends to relatively low D&C costs seen in the Arkoma. Examples of D&C costs from multiple operators are listed in Table 1, with an average D&C cost of ~$4 million. With Q2 quarterlies reporting average STACK wells for Continental Resources at ~$10 million and ~$6.3 million for Devon Energy, according to Drillinginfo’s report from Detring Energy Advisors, it is no surprise there has been a resurgence of shallower reservoirs in the Arkoma Basin.
Figure 4: Active producing horizontal wells with a first production date within the last six years, sized by first 12 BOE and colored by reservoir alias, and leases with a record date within the last 180 days. The primary producing reservoir in the Arkoma Basin is the Woodford. This reservoir has been one of the dominant producing formations, not only in horizontal wells within the Arkoma, but in traditional vertical wells as well. According to the Woodford structure map from Drillinginfo’s Play Assessments, the Woodford can be as shallow as ~4,500 feet, which may be a key factor to why operators are targeting the Arkoma Basin.
Table 1: Pooling Orders for multiple operators located in the Arkoma Basin and the STACK. The average D&C cost for the wells in the Arkoma is ~$4 million, which is relatively low compared to D&C costs of similar wells drilled in the STACK, which approach $10 million. The options given for acreage are relatively low, with the most expensive being $650/acre with a 1/8 royalty in the Arkoma Basin.
The Arkoma Basin has been a proven producer since the mid-1950s, with a large amount of currently producing wells drilled prior to the early 1980s (Figure 5). The most prolific producing formation in Hughes County prior to horizontal drilling was the Hartshorne Sandstone, which is Pennsylvanian in age. Since the advent of horizontal drilling around 2005, the dominant producing formation has been the Woodford Shale. There are currently 504 active producing horizontal wells in Hughes County, with a reservoir designation of Woodford. Like most of the production in Hughes County, these wells are primarily gas with associated liquids, which is why a significant number of wells drilled in the early 1980s are still currently producing.
Figure 5: Crossplot of First Production Date vs. Measured Depth (ft.) of active producing wells in Hughes County. You can see from the chart that the majority of wells drilled in the Arkoma have a measured depth of less than 6,000 feet, with the Hartshorne Sandstone being the most abundant producer prior to 2005. After 2005, the measured depth of most wells drilled more than doubled, which indicates when horizontal wells begin to emerge in the Arkoma Basin, with the Woodford averaging a TVD of ~7,000 feet.
The calculated type curve using all currently active horizontal Woodford wells in Hughes County suggests the P90 for these horizontal wells is 2,163,422 mcf (Figure 6) using an Arps equation modeled to an economic limit of 360 months. Although these wells have lower cumulative volumes than those found in the SCOOP and STACK, operators appear to be betting big on this reemerging play. According to the Vanguard Natural Resources report from October 2016 (Figure 7), their acreage in Coal and Pittsburg counties have RORs of approximately 15% and 45% respectively, near current commodity prices.
According to Nathaniel Harding, founder of Antioch Energy LLC, another active player in the Arkoma, this “play is first class” and “equivalent to the STACK and SCOOP.” He also referred to this play as the “Arkoma STACK.” Another sign of activity heating up in the Arkoma is Corterra Energy’s acquisition of ~26,000 net acres and interest in over 400 producing wells from Continental Resources. This acquisition brings Corterra’s acreage position in the Arkoma to ~70,000 net acres.
Previously, production in the area only suggested that at current commodity prices operators were near breakeven with their unconventional Woodford wells. However, overwhelming activity by PE-backed E&Ps and big-name land brokerages within the last 180 days points to a revitalization of this older play. Due to the shallow nature of the Arkoma Basin, and the relatively low D&C costs in this legacy field, a revitalization may be seen in the Arkoma that is similar to that currently being seen in the San Andres.
Figure 6: On the left is a historical decline curve for the 504 currently active horizontal wells with a first production date of 1/1/2014 to the present in Hughes County. You can see production has slightly improved over time since 2014. On the right is a calculated type curve of the same 504 wells. This model was created using an Arps equation to an economic limit of 360 months. The best-fit parameters calculated for this fit were: Qi = 76635.17, Di = 0.214, and b-factor = 1.427, and the calculated P90 for this set of wells is 2,163,422 mcf.
Figure 7: Price sensitivity chart from Vanguard Natural Resources. In this chart you can see near-current prices of $3/mcf. The ROR for Vanguard’s wells in Pittsburg County is ~15% and in Coal County is ~45%. Wells drilled in Hughes and Atoka counties require a price higher than ~$3.75/mcf to have a ROR >0%.