The Energy Report

Source: Streetwise Reports   09/12/2017

Oil and gas companies are racing to acquire land in Oklahoma’s STACK region, known as an area of low-cost production.

STACK, a major area of energy-development interest in Oklahoma, stands for Sooner Trend Anadarko basin Canadian and Kingfisher counties. The area’s importance was highlighted by the U.S. Energy Information Administration action in August to expand its weekly Drilling Productivity Report to include the Anadarko Basin, the area that contains the STACK and SCOOP zones.

The EIA said the addition of the Anadarko Basin is consistent with the report’s aim to “cover the most prolific and active on-shore regions where oil and natural gas are produced from shales and other tight resources. In the recent years the Anadarko region, which includes 24 Oklahoma and 5 Texas counties, has become the target of many producers using improved drilling and completion technology to this already well-established oil and gas producing basin. As of July 2017, there are 129 operating rigs in the Anadarko region, second to only Permian region with 373 operating rigs.”

As companies race to the area to take advantage of its lower cost production, operators in the region include:

Devon Energy Corp. (DVN:NYSE), whose Q2/17 oil production exceeded guidance in large part because of the company’s activity in the STACK zone. In July, Devon announced that its Privott 17-H well set records with a “facility-constrained peak 24-hour rate of 6,000 oil-equivalent barrels (Boe) per day (50 percent oil). When compared against publicly available data in the STACK, the Privott well achieved the highest initial production rate of any well by a wide margin and is expected to recover in excess of 2 million Boe over the life of the well.”

Tony Vaughn, Devon’s chief operating officer, commented, “Looking ahead, we expect to continue to build operational momentum in the STACK as we transition our activity to multi-zone development drilling that will drive additional efficiency gains and maximize the value of our resource.”

Jericho Oil Corp. (JCO:TSX.V, JROOF:OTC), an oil junior that just acquired a nearly one-third interest in 9,400 net surface acres in the STACK. The joint venture was able to acquire the rights at a much lower cost than many of its neighbors; its implied acreage acquisition cost of $2,300/net Mississippian acre adjusted for PDP compares to as much as $15,000–$20,000 per acre that major players have paid in this area of the STACK.

Jericho CEO Brian Williamson told Streetwise Reports that its acreage is “sandwiched between several best-in-case, sizable independents, including the likes of Alta Mesa Holdings (AMR:NASDAQ), Marathon Oil Corp. (MRO:NYSE), Sandridge Energy Inc. (SD:NYSE), Newfield Exploration Company (NXF:NYSE), Continental Resources (CLR:NYSE), Gastar Exploration (GST: NYSE) and Chesapeake Energy Corp. (CHK:NYSE), which trade at much higher multiples for their STACK acreage values.”

Most analysts believe that the price of oil will remain well under $100/barrel for the foreseeable future. Williamson commented, “The things we are seeing suggest that the STACK and our acreage in particular can be developed profitably with oil in the $30-35/bbl price range.”

Marathon Oil Corp. (MRO:NYSE), which substantially increased its profile in the STACK when it purchased PayRock Energy Holdings for $888 million in 2016. With the acquisition came PayRock’s 61,000 net acres in the STACK. The PayRock acquisition, the company reported, had an implied acreage value of $11,800 adjusting for proved developed producing (PDP) reserves.

“Acquiring PayRock’s STACK position will meaningfully expand the quality and scale of Marathon Oil’s existing portfolio in one of the best unconventional oil plays in the U.S,” Marathon Oil president and CEO Lee Tillman stated.

Continental Resources Inc. (CLR:NYSE), which has rapidly expanded into the STACK region. Continental Resources president and COO told The American Oil & Gas Reporter earlier this year that “Continental completed its first STACK well in August 2015. In the past year-and-half, we have pioneered the play into the overpressured window of Blaine County, Ok. STACK clearly has become a key catalyst for Continental’s growth. We have never had a play this prolific evolve so quickly. The results have exceeded our early expectations, and the impact on Continental’s production growth both near term and long term will be significant.”

The company reported that in August it completed a record well in the STACK area. “The Tres C FIU 1-35-2XH flowed an impressive 1,021 Bo and 29.6 MMcf of gas (5,953 Boe) in its initial 24-hour test, with flowing casing pressure of 6,500 pounds per square inch from a 9,748-foot lateral. Adding an additional 1,978 barrels of anticipated natural gas liquids post-processing, Continental estimates the initial 24-hour IP rate for the Tres C would be a record 7,442 Boe (40% liquids) on a three-stream basis.”

Honorable mentions

Newfield Exploration Co. (NFX:NYSE) holds more than 300,000 net STACK acres. In March, the company announced that its Burgess well in Kingfisher County “achieved a 24-hour flow rate of 2,931 BOEPD (69% oil) and a 20-day average rate of 2,492 BOEPD (70% oil).”

SandRidge Energy Inc. (SD:NYSE) announced in August that it has entered into a $200 million development agreement with a private investment fund to develop wells in the NW STACK, where it holds rights to 70,000 net acres.

Alta Mesa Resources Inc. is a company to keep your eyes on. It is being formed by the merger of Silver Run Acquisition Corp. II, Alta Mesa Holdings LP and Kingfisher Midstream LLC. The new entity is expected to close in mid/late November and would trade on NASDAQ under the ticker AMR.

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( Companies Mentioned:

DVN:NYSE,
JCO:TSX.V; JROOF:OTC,
MRO:NYSE,
NFX:NYSE,
SD:NYSE,
)