Emerging Plays, New Technology Renew Oklahoma’s Anadarko Basin

Oklahoma is in a world of hurt when it comes to oil and gas activity with drilling shutting down across the state.

However, some companies are looking at using new completion methods in emerging plays in Oklahoma’s Anadarko Basin to sustain operations in a tough commodity price environment.

For example, one of the largest operators in the Anadarko Basin, Newfield Exploration Co. (NFX), has turned away from the Granite Wash and ramped up activity in the Stack and Scoop areas targeting the Woodford and Meramec shales.

Other operators, like Devon Energy Corp. (DVN) and Cimarex Energy Inc. (XEC), have also taken notice of the Meramec, while Jones Energy Inc. (JONE) is working to exploit the Cleveland Sands using a new completions technique.

Roughly half of regional drilling activity in the Midcontinent is on a well-by-well basis with operators elsewhere finishing out contracted drilling programs and holding off on renewing contracts and activity, according to a Hart Energy Market Intelligence report.

Operators are only drilling to hold leases outside the Cana Woodford/Scoop play, where rig count remains static, the report said.

The rig count of the once mighty Granite Wash in the Anadarko Basin has also taken a nose dive. The dry gas play currently has 16 rigs operating, down from a peak of around 70 rigs in summer 2014, according to Baker Hughes Inc. (BHI).

Some operators are looking toward late third-quarter before venturing back into the market, the report said.

In the meantime, operators are finding ways to adapt completion technology to improve recoveries and make portions of their portfolio economic in a tough commodity strip. The liquids-rich portion of the Anadarko Basin is attracting renewed operator attention despite more than 100 years of development.

Stacking Up

Newfield continues to focus investment on its acreage in the Anadarko Basin, where net production was up nearly 80% year-over-year.

The company, headquartered in The Woodland, Texas, considers the basin a “world class” resource and has recently adjusted its operations to stress that point.

Earlier in the year, the company closed its Rocky Mountain and Onshore Gulf Coast region offices to shift both human and capital resources to its Anadarko Basin operations.

Also, the company increased its position in the Anadarko Basin’s Scoop and Stack plays last year to more than 250,000 net acres while exiting the Granite Wash in a deal worth $588 million.

"We right-sized our investment levels and shifted the lion's share of our capital to the Anadarko Basin, where we are seeing very strong and improving rates of return," said Lee K. Boothby, chairman, president and CEO, according to a Seeking Alpha transcript of the company's May 6 earnings call.

About 70% of the company's planned capital investments in 2015 are being allocated to the Anadarko Basin’s Scoop and Stack plays. Production from the plays is expected to grow more than a 45% year-over-year.

During the first quarter, the company maintained its 2015 guidance of 142-151 thousand barrels of oil equivalent per day (Mboe/d), 63% liquids, on a $1.2 billion capital budget. Production from the Anadarko Basin during the quarter averaged 52.7 Mboe/d.

The company’s Stack wells continue to meet expectations, said Robert DuBoff, analyst, Oppenheimer & Co. Inc., in a report.

Production from recent Stack wells averaged 74% over 30-day rates. Another 15 additional operated wells in the basin have recently commenced production or are in various stages of completion, the company said.

The company said well costs are trending downward, with Stack wells around $8.5 million, which is down 30% since early 2014, ahead of company plans. Downspacing results to-date have proven successful, DuBoff said.

DuBoff said he sees “room for upside later this year due to both higher cash flows from rising oil prices and cost cuts coming in ahead of schedule.”

“We believe a strong hedge position and bolstered balance sheet will enable Newfield to execute, accelerate and potentially add to its inventory, and maintain our Outperform rating,” he said.

Newfield will continue to be on the lookout for ways to add to its position in the Anadarko Basin, Boothby said in a conference call in February.

“We are hopeful that there will be opportunities for us to consolidate through bolt-on deals in the Anadarko Basin and we want the financial strength to do so,” he said. “Newfield is a leader in the area and we are building scale in a region where we have a proven and distinct competitive advantage.”

Emerging Meramec

Other companies, like Devon and Cimarex, were also busy in the Anadarko Basin during the first quarter, delineating its Meramec acreage in the Stack.

Devon said the Woodford and Meramec combined provide the company with 340,000 net acres and more than 4,000 locations to develop. The drilling inventory in the play is one of the deepest and most economical in the company's portfolio.

The Oklahoma City company is running three rigs during 2015 to assess its acreage in the emerging Meramec play.

Thus far, the company has drilled or participated in 12 Meramec wells with at least 30 days of production history. Initial 30-day rates from the appraisal wells averaged about 1,500 boe/d.

“With this successful appraisal activity in the Meramec, we have now derisked 60,000 net acres in the oil and liquids window of the play and identified more than 400 risked locations,” said John Richels, the company’s president and CEO, in a May 6 earnings call.

The company said it will continue to derisk its acreage in the play throughout the year with plans to spud or participate in about 30 additional Meramec wells in 2015.

Cimarex has 115,000 net prospective acres in the Meramec play and has derisked 70,000 net acres to-date.

During the first quarter, the Denver company drilled on more well in the play with an average 30-day peak initial production of 9.8 million cubic feet equivalent per day (MMcfe/d) or 1,628 boe/d, said John Lambuth, vice president of exploration at Cimarex, according to a Seeking Alpha transcript of the company's May 5 earnings call.

“This well has a very high oil yield averaging 788 barrels of oil per day,” Lambuth said.

The company now has drilled a total of seven wells in the Meramec play with an average 30-day peak initial production of 10 MMcfe/d.

Lambuth said the company will continue to delineate the play by testing long laterals, high-grading its frack design and refining its geologic model.

Unlocking Completions

Another company focusing on the Anadarko Basin, Jones Energy, might’ve found the solution to surviving the downturn in crude prices—openhole completions.

During the first quarter, the Austin, Texas company continued to transition to openhole completions from sliding sleeve in the Anadarko Basin’s Cleveland Sands play in Oklahoma and the Texas Panhandle. The switch has resulted in improved operations and allowed the company to add more rigs in the play.

"We are likely one of the few companies that will be adding rigs in the middle of the year and we are doing so with a cash flow neutral program," said Jonny Jones, the company’s founder chairman and CEO, in a release. "As we add rigs, we will continue to hedge production in order to lock in our favorable margins."

The last of the sliding sleeve wells drilling 2014 were completed during the first quarter. Future activity is expected to utilize the openhole design, the company said.

The transition to openhole completions has eliminated some of the issues with sand flowback that impacted its fourth-quarter results in 2014, said Patrick Rigamer, vice president and senior E&P analyst, Global Hunter Securities, in a report.

The company is also seeing efficiency improvements as shifting back to openhole completions has resulted in a 50% improvement in average spud to sales times since October 2014.

So far this year, Jones has spud 12 and completed 11 of the 33-stage openhole wells. In total, it has spud 14 wells and completed 27 wells, with 34 wells seeing first production during the quarter.

Jones recently set company records for spud-to-rig release at 13.7 days and a one-day lateral length drilled of more than 1,900 feet.

"The spud-to-rig release record was almost two full days faster than our previous best, and this is in a formation where we have drilled more than 500 horizontal wells over a 10 year period,” Jones said.

Cleveland oil production for first-quarter 2015 increased 35% compared to the fourth quarter of 2014. The increase was a result of reducing the backlog of drilled but uncompleted wells from the fourth quarter of 2014 along with a significant reduction in overall cycle times, Rigamer said.

During the first quarter, daily net production in the play was 19 Mboe/d, up 11% quarter-over-quarter, despite only running three rigs for the majority of the quarter.

Early production results have matched the company’s projected type curve and it’s also ahead of schedule on planned cost reductions on the new wells, he said.

With the drilling efficiencies, Jones has achieved its targeted cost reductions in the Cleveland play ahead of its mid-year goal, he said.

Well costs are now below $2.65 million, which allows management to add two rigs to the program bringing the total to five.

“Jones now appears well position to achieve its targeted production and cash flows for the remainder of the year, and we see upside potential in the stock as the company continue to meet [and potentially exceed] its targets,” he said.

Contact the author, Emily Moser, at emoser@hartenergy.com.