Exploration

Analysis: SCOOP/STACK operators scale back rig activity

By Brandon Evans, S&P Global Platts, Denver — Operators in the SCOOP/STACK have shed about a quarter of rigs in the play year to date, but with Midship Pipeline on track to enter service soon, it looks to ensure production growth despite the recent decline in activity.

Scoop Stack Rig Count

The central Oklahoma basin has attracted considerable attention from investors in the last couple of years. The runway toward crude and natural gas production growth was cemented with investments that brought on mid- and downstream infrastructure. Even new in-basin frack sand mines were developed with the anticipation of increasing drilling and completion activities.

Since January, however, rig activity in the SCOOP/STACK has declined considerably, and a number of exploration and production along with midstream companies have shifted their focus away from the basin, igniting concerns about its long-term potential. The number of active rigs in the basin went from 106 early this year to 80 rigs currently, according to S&P Global Platts Analytics.

Scoop Stack Rig Count

The number of active rigs in the STACK has dropped from about 64 in January to as low as 33 in mid-June. During the same period, the number of active rigs in the SCOOP increased from 43 to 47. SCOOP wells produce a higher percentage of oil in the production mix than STACK wells.

The heavy investment in the SCOOP/STACK caused production to surge from 2.4 Bcf/d in January 2017 to 3.9 Bcf/d this month. However, between now and December 2020, production is projected to only grow by approximately 300 MMcf/d, according to Platts Analytics.

There are several recent examples of companies pulling back from the SCOOP/STACK.

Devon Energy, one of the largest independent operators in the US, announced plans earlier this year to reduce its overall investment in the STACK if needed and remove one drilling crew. STACK pure-play operator Alta Mesa has repeatedly lowered its production targets in recent quarters. The company also cut its work force by nearly a third and wrote down $3.1 billion in assets due to financial issues. After acquiring Newfield in February, EnCana announced that it plans to reduce its rig fleet in the STACK from 10 rigs to four.

And EnLink Midstream, one of the largest midstream entities in the STACK, lowered its 2019 guidance growth for gas gathering and processing volumes from 29% down to 10% to 15%.

Additionally, Oklahoma changed its oil and gas tax legislation last year, increasing the tax rate for the first three years of production from 2% to 5%. This has hurt profit margins for operators.

REASONS FOR OPTIMISM

Despite a recent decline in activity, there are still several reasons to remain optimistic in the future of the plays. For example, operators reduced the number of days it takes to drill a well in the SCOOP/STACK by an average 15%, or four days, between the first and second quarter of this year, according to Platts Analytics. This means that operators in the basin are able to do more with fewer rigs.

Gains in drilling and production efficiencies along with cost cutting have allowed many operators in the play to double down on their growth targets or even increase them in some cases. Roan Resources has raised its crude and natural gas production guidance for the year, despite the fact it also lowered its capital spending by 10%.

Also, the SCOOP/STACK will soon receive one of its most important expansions to date, the Midship Pipeline, which will ensure continued production growth. Owned by Cheniere, the 1.44 Bcf/d system will begin in Kingfisher County, Oklahoma, the northern end of the SCOOP/STACK, and wind 200 miles to deliver into pipelines supplying Gulf Coast and Southeast markets. Cheniere anticipates it to enter service near the end of 2019.

— Brandon Evans, bevans@spglobal.com

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