A small oil field in Oklahoma is seeing big bets from producers

Jericho Energy Ventures

19/03/2018 18:38

By John Benny
    March 19 (Reuters) - A little-known shale oil play in
Oklahoma is attracting more drilling and investment as rising
output from newer wells is enticing companies to boost
production beyond the giant Permian basin in Texas.
    The Meramec formation is a part of what is called the STACK
region - Sooner Trend Anadarko basin Canadian and Kingfisher
counties - where companies such as Marathon Oil  MRO.N  and
Devon Energy  DVN.N  bought up acreage following the oil slump
in 2014.
    Those investments are now paying off as production levels
rise and soaring land costs in the Permian have producers
looking to other fields for expansion. 
    Leading the pack is Oklahoma-based Devon Energy Corp, which
expects its STACK production to reach 140,000 barrels of oil
equivalent per day (boed) by the end of 2018, up from 107,000
boed a year ago.
    Devon, also a Permian operator, said in a presentation
earlier this month that it has earmarked more than 95 percent of
its STACK budget for Meramec although it did not disclose dollar
values.
    Houston-based Marathon Oil Corp said last month it brought
26 wells online on a gross basis in the last quarter - nearly a
third of all its new wells - up from 7 wells a year earlier. Its
total production from Oklahoma rose to 64,000 boed in the fourth
quarter, up about 42 percent over a year-earlier.
    Smaller oil producers also are taking notice. Colorado's
Cimarex Energy  XEC.N  said it is continuing to map the Meramec
and move to development of its acreage there. Canada's Jericho
Oil  JCO.V  also plans "tuck-in acquisitions" in the region.
    "We are extremely encouraged with the results of ... Meramec
wells," said Jericho Chief Executive Brian Williamson.
    
    COMPETING WITH PERMIAN
    Low break-even prices and high output have contributed to
rising activity in Meramec and the nearby Osage shale formation.
    Completions rose to 170 in the final quarter of 2017, from
just 18 at the start of 2015, according to data from exploration
and production consultants Rystad Energy NASWellCube. The number
of finished wells more than doubled over the last four quarters.
    "Meramec/Osage not only compete with major liquid plays,
they clearly belong to Tier 1 acreage," says Rystad's Per Magnus
Nysveen, referring to leading basins like the Permian.
    The U.S. Energy Information Administration (EIA) projects
production from the Anadarko Basin, of which the STACK region is
a part, to reach 493,000 bpd in April, still dwarfed by the more
than 3 million barrels flooding out of the Permian basin daily. 
    But new-well production per rig in the basin is up 8.6
percent since August, compared with a 6 percent increase in the
Permian, according to EIA data.    
    "There is a lot of upside ... (Meramec) has proven to have
results similar, and in some cases better, than the Permian,"
said Taylor Cavey, an analyst at energy information provider S&P
Global Platts.
    There are potential brakes on the greater drilling activity.
Oklahoma energy regulators have identified the surge in Meramec
activity as a reason behind earthquakes in the region, and
recently toughened fracking rules for producers. 
    Average break-even prices in the Meramec, at around $40 per
barrel, also remain around $5 per barrel higher than in the
Permian, said Jessica Van Slyke, an analyst at consultancy Wood
Mackenzie. That may fall, however, as production accelerates,
said Rystad's Per Magnus Nysveen.
    Rising land prices in the Permian may be offsetting such
worries. In 2017, Permian land prices climbed to an average of
about $20,000/acre, said Rystad's Artem Abramov, from just about
$2,000 in the last decade. The going rate for land in the STACK
region was just $7,600/acre last year. 

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Production and Rig Count Across Major U.S. Oilfields    http://reut.rs/2HDqp0H
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 (Reporting by John Benny in Bengaluru
Editing by Gary McWilliams and Phil Berlowitz)
 ((John.Benny@thomsonreuters.com; +1 646-223-8780; Reuters
Messaging: John.Benny.thomsonreuters.com@reuters.net))