By: J. Robinson – S&P Global Platts – Surging oil prices fueled by Russia’s ongoing war in Ukraine have boosted drilling margins in Oklahoma’s SCOOP-STACK basin where rising crude output now appears to be lifting associated gas production.
Over the past five weeks, US crude prices have zoomed past $100/b following the global market higher as supply concerns in Western Europe mount. At the US benchmark WTI location, prompt-month futures traded at a nearly ten-year high in March averaging about $108.50/b, data from S&P Global Commodity Insights shows.
Record-setting prices have lifted operating margins for US drillers across the board. Oklahoma is no exception, with internal rates of return in the state hitting historic highs last month. In the liquids-rich STACK basin, half-cycle, post-tax IRRs jumped to about 57% in March. In the SCOOP, returns are now estimated around 51%, according to a recently published analysis from S&P Global.
Rig count across the two shale basins briefly climbed to 45 in March, marking a 30-month high that may have been motivated at least in part by more enticing returns. According to Enverus’ latest estimates, the SCOOP-STACK rig count now stands at 42 as of the week ended March 30.
In February, operators in the broader Anadarko producing region of Oklahoma, which includes the SCOOP-STACK, drilled some 57 new wells and completed an estimated 67 – both at levels unseen since the pre-pandemic days of first-quarter 2020, data from the US Energy Information Administration shows.
The acceleration in Oklahoma drilling activity, which began in earnest last spring, lifted SCOOP-STACK crude production to a 14-month high in March at an estimated 313,000 b/d, according to S&P Global data. Data from the EIA’s Drilling Productivity Report estimates current crude output from the wider Anadarko Basin at closer to 400,000 b/d – also a 14-month high.
Rising crude output has given associated gas production a boost. Following a series of freeze-offs in January and February, production has rebounded sharply over the past five weeks, hitting pre-pandemic levels at over 4 Bcf/d in April, analytics data from S&P Global shows.
Strong futures and forwards prices for Oklahoma crude and natural gas promise to keep production in the SCOOP-STACK growing this year. Despite a backwardation structure in the oil market, WTI forwards prices at Cushing, Oklahoma remain above $100/b at least through July. At the NGPL Midcontinent hub, the forward curve is in contango through August, priced at around $5.30/MMBtu. For the 2022-2023 peak-winter heating months, NGPL Midcontinent is now pricing in the low-$6/MMBtu range, Platts M2MS forwards data shows.