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COLUMN-Oklahoma gears up for next big shale play: John Kemp


Wed Nov 28, 2012 11:44am EST

By John Kemp

LONDON Nov 28 (Reuters) – Oklahoma could be on course to
see the next big increase in oil and condensates production,
following North Dakota and Texas, as innovative drilling
companies move in to explore the liquids-rich sections of the
Woodford shale under the western half of the state.

Oklahoma is a very old oil producer: the first oil was
discovered in 1897, a decade before Oklahoma was admitted to the
union.

In recent decades, however, the state’s conventional fields
have appeared exhausted. Production peaked as long ago as 1927
at 277 million barrels for the year. By 1980, output had fallen
to 149 million barrels, sinking to just 58 million barrels in
2010, according to annual production records from the Oklahoma
Commerce Commission (OCC).

In 2011, production jumped to 77 million barrels. But
Oklahoma still accounted for just 3.8 percent of all oil
produced in the United States. Production has been broadly flat
at 175,000-200,000 barrels per day (bpd) since the start of the
century. Meanwhile, fracking has lifted North Dakota’s output
from less than 100,000 bpd to more than 700,000 bpd over the
same period.

Oklahoma has more than 32,000 oil wells. However, more than
30,000 of them are “stripper” wells producing less than 15 bpd
that are marginally economic. Only 163 wells produced more than
100 barrels per day in 2009, according to the Energy Information
Administration (EIA), the independent statistical arm of the
U.S. Department of Energy.

The state is better known as a natural gas producer.
Oklahoma accounted for 8 percent of all U.S. gas output last
year, ranking behind Texas and Louisiana. In fact, the state’s
52,000 gas wells accounted for almost 30 percent of all the
crude and condensate produced in the state in 2009.

But all that may be about to change.

WORLD-CLASS WOODFORD

The western half of Oklahoma lies on top of the Anadarko
Basin, a huge sedimentary formation that has already yielded
most of Oklahoma’s conventional oil and gas.

Now attention is turning to the possibility of unlocking the
basin’s unconventional resources using the same horizontal
drilling and hydraulic fracturing techniques that have prized
millions of barrels of oil and condensates from North Dakota’s
Bakken and Texas’ Eagle Ford.

Specifically, drillers and frackers are now targeting the
basin’s Woodford shale layer. The Woodford shale is “one of the
thickest, best quality resource shale reservoirs in the
country,” according to Continental Resources, the
company which more than any other is associated with the
development of the Bakken.

Woodford is up to 400 feet thick, according to Continental,
with a rich organic content and which potentially contains
enormous amounts of oil and gas in continuous-type
unconventional formations.

In terms of area, Woodford (3,300 square miles) is smaller
than either the Bakken (13,000 square miles) or Eagle Ford in
Texas (5,000 square miles). But it is also much thicker (150-400
feet) than either Bakken (10-250 feet) or Eagle Ford (100-250
feet). The total organic content (6-12 percent) puts it
somewhere between Bakken (5-20 percent) and Eagle Ford (3-7
percent).

Woodford contains 400 million barrels of oil that could be
recovered, accorded to an estimate by the U.S. Geological Survey
published in 2010, and another 250 million barrels of valuable
condensates, as well as plenty of associated gas. Continental is
even more bullish about potential ultimate recoveries.

FOCUSING ON THE SCOOP

Continental has featured the most prospective area of the
Woodford shale, a section that it calls the South Central
Oklahoma Oil Province, SCOOP, as one of its two favoured plays
alongside the Bakken in recent presentations to investors,
underlining its importance to the company.

Continental has been leasing oil and gas rights in the
Woodford even faster than in the Bakken to exploit it. Between
2009 and October 2012, Continental increased its net acreage in
the Anadarko-Woodford area by 113 percent from 149,000 to
316,000 acres, compared with a 51 percent rise in net Bakken
acres from 645,000 to 915,000.

Because of the divergence between oil and gas prices, the
company has focused on the oil-rich and condensate-rich parts of
the shale (“fairways”) in the east, which lie under Grady,
McClain, Garvin, Stephens and Carter counties, rather than the
gas-rich areas further to the west.

Continental claims wells in the oil fairway have yielded as
much as 75-85 percent liquids (crude plus condensate) while
liquids yields from the condensate fairway have been about 60
percent.

It has drilled or participated in 35 wells to date and plans
to bring the same efficiencies that it pioneered in the Bakken,
cutting drilling and fracking times and costs, to the new play.

THE SILENT REVOLUTION

The Woodford play remains in its infancy. The full scale of
exploration and development work has been obscured because the
state also produces significant amounts of conventional oil and
gas. Both have been under pressure because of the plunge in gas
prices to less than $4 per million British thermal units and the
slide in prices for midcontinent U.S. oil.

Oklahoma oil prices are directly tied to the price of
benchmark crudes delivered in-state at Cushing. Average Oklahoma
oil prices fell from $102 in March to less than $75 in June,
according to the Corporations Commission. The result has been a
slowdown in conventional production from stripper wells, which
has masked the increase in fracking.

Similarly, the number of drilling rigs active in the state,
has remained at around 200, which is roughly similar to the
number drilling back in 2008, at the height of the oil and gas
boom. But that masks a huge shift from gas-directed to
oil-directed drilling. In 2008, some 1,098 oil wells and 2,201
gas wells were completed. By 2011, the numbers were 1,573 and
876.

Other gas producing states, like Louisiana, have seen a
sharp drop in the number of active rigs since 2008 as the gas
industry responds to a sharp decline in prices. In Oklahoma,
however, rigs have simply been shifted from gas to oil plays
within the state, which has to some extent hidden the extent of
the state’s new oil revolution.

More rigs are now drilling in Oklahoma than in any other
state apart from Texas. Only North Dakota is even close.

Continental Resources admits that it has kept the full
potential of the play relatively quiet until recently while it
has secured mineral leases. The company only began to discuss
the full potential of the SCOOP/Woodford in its marketing
materials in October.

The SCOOP/Woodford formation is even deeper underground than
the Bakken and Eagle Ford shales, so wells will be expensive.
But the high liquids content should ensure they have high rates
of return.

Crucially the shale play is located in many of the same
counties that have previously hosted conventional oil fields.
The state already has plenty of oil and gas-gathering pipelines
and infrastructure to support a fairly rapid increase in output.
And the state government is enthusiastic about oil development.

Oklahoma’s oil and gas business — an increasingly complex
mix of oil and gas, conventional and unconventional resources –
makes production and drilling statistics hard to interpret.

While the Woodford shale should boost oil drilling and
output, the marginal nature of many stripper wells makes
conventional output susceptible to any drop in oil prices, and
oil output from gas wells will remain under pressure from low
natural gas prices.

Nonetheless, the attractive characteristics of the Woodford
shale should result in a significant expansion of oil output in
the next five years as the play is developed.

Short URL: http://refinerynews.com/?p=53845

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