Oklahoma Oil and Gas Drilling Outlook: Drilling Activity by Wells and Rigs in STACK, SCOOP & Other Areas

Stacked Plays: The Favored Geology in the SCOOP and STACK

SCOOP and STACK are some of the most promising pieces of oil and gas acreage in the US. Like the Permian Basin in Texas and New Mexico, they contain multiple drillable layers bearing fossil fuels. Via the advancement of unconventional technology, these layers are now capable of being exploited profitably. The STACK is the more promising of the two plays, containing the Chester, Hunton, Meramec, Osage, Oswego, and Woodford formations. The Meramac is the most highly sought after layer, possessing an oil window that, once fractured, produces overpressured oil with low water content. The SCOOP includes layers that can be drilled including the Caney, Hoxbar, Hunton, Springer, and Woodford. While the Woodford Shale is historically the most drilled strata, the recently identified Springer Shale is seeing increased attention.

Key Findings in the Oklahoma Oil and Gas Drilling Outlook Study:

The STACK and SCOOP Lead Drilling Trends in Oklahoma

Two plays are leading the resurgence of Oklahoma oil and gas drilling, the STACK and SCOOP. Both plays lie in the Anadarko Basin of the Woodford Shale. Besides possessing acreage in the heavily-drilled Woodford, these plays have multiple layers of rock and sand capable of being drilled and fractured for oil and gas. The STACK, in particular, has been a highly sought acreage in recent years, favored for its over-pressured and low-water content layer, the Meramec. The STACK was able to avoid significant losses during the drilling downturn that occurred following the oil benchmark price collapse in 2014. Going forward, these plays will continue to increase the importance of the energy industry in Oklahoma.

Unconventional, Horizontal Drilling Techniques Have Advanced and Improved Drilling Economics

Since the rapid expansion of horizontal drilling, less than 10 years ago, significant advances in technology and methods have occurred. Wells are now being drilled more accurately, at faster rates, and with longer laterals, sometimes multiple laterals. Wells are now being completed with more complicated fractures, including tighter clusters and shorter intervals, using higher densities of proppants. Overall, this has shifted breakeven costs in the direction of drillers by decreasing overall costs, while increasing IP rates and EURs. Wells are drilled more cheaply, on a dollar per foot basis, and resources are extracted more easily, on a unit per foot basis.

Advance of Horizontal Drilling Has Slowed in Other Areas

Outside of the STACK and the SCOOP, where horizontal drilling accounts for over 90+% of the drilling activity, another type of drilling remains popular amongst operators. Vertical and directional drilling account for nearly a third of the wells drilled in other areas. This proportion has remained relatively flat for the past few years, reflecting a different trend then the rest of the country. Whereas in most areas horizontal drilling is slowly becoming the main type of oil and gas extraction, in less-promising plays, vertical wells are still used. Operators, constrained by low benchmark oil prices, are relying on older, traditional drilling methods in conventional plays to turn a profit. Although horizontal wells can prove much more productive, the overhead costs of drilling these wells can dissuade drillers from proceeding. The economics of drilling wells at the current price points pushes operators to drill horizontally in the most prolific plays or vertically in the plays that are less sought after.

Drilling Services Costs Have Allowed Drilling to Continue, Despite Low Price Environment

While technology has played a role in helping drillers extract resources in tight oil and shale gas plays in a profitable manner, the current cost of drilling services is an additionally significant contributor to current drilling activity. Following the price collapse in oil benchmark prices in 2014, drilling activity quickly decreased throughout the US. In order to maintain business and to be competitive, companies that provided drilling services had to cut prices. Although, the price of oil has slowly improved in recent months, the low cost of drilling services has allowed drillers to re-enter the market. Going forward, drilling services costs will increase, playing a crucial role in the activity of US oil and gas.

Study Coverage

This Freedonia study analyzes the Oklahoma oil and gas drilling outlook. It presents historical data (2015 and 2016) and forecasts (2017 and 2018) by play (STACK, SCOOP, Arkoma Woodford, and Granite Wash) in wells drilled, footage, and active rigs. Additionally, data is analyzed by well trajectory, resource, operator, and formation, where applicable. The study also evaluates drilling rates, drilling costs, land acquisitions, and infrastructure.

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Table of Contents

EXECUTIVE SUMMARY

OKLAHOMA OIL & GAS DRILLING OVERVIEW

Key Findings

Upstream Activity

Historical Drilling Trends

Drilling Activity by Trajectory

Oklahoma Share of US Drilling Activity

Factors Impacting Drilling Activity

Historical Oil & Gas Price Volatility

Price Forecasts

Drilling Costs

Drilling Efficiency

Length of Laterals

Mid- & Downstream Infrastructure

Environmental & Regulatory Considerations

STACK

Key Findings

Scope

Historical Drilling Activity

Drilling Forecast

Factors Impacting Drilling Activity

Infrastructure Investment

Land Acquisitions

Drilling by Operator

Drilling Forecast by Resource

Drilling Forecast by Trajectory

Drilling by County

Drilling by Formation

SCOOP

Key Findings

Scope

Historical Drilling Activity

Drilling Forecast

Factors Impacting Drilling Activity

Infrastructure Investment

Land Acquisitions

Drilling by Operator

Drilling Forecast by Resource

Drilling Forecast by Trajectory

Drilling by County

Drilling by Formation

OTHER AREAS

Key Findings

Scope

Historical Drilling Activity

Drilling Forecast

Factors Impacting Drilling Activity

Drilling by Operator

Drilling Forecast by Resource

Drilling Forecast by Trajectory

Drilling by County

Drilling by Formation

APPENDIX

Scope

Plays

Well Types

Resource Types

Methodology

Sources

Associations & Agencies

Related Freedonia Group Studies

Definitions

Abbreviations

Macroeconomic Assumptions

Economic Environment

Oil & Gas Production Outlook

List of Tables

OKLAHOMA OIL & GAS DRILLING OVERVIEW

Table 2-1 | Oklahoma: Upstream Drilling Activity, 2015 - 2018

Table 2-2 | Oil & Gas Prices, 2015 - 2018

Table 2-3 | US Exploration & Development Costs per Well Drilled Selected Operators, 2014 - 2016 (mil $)

Table 2-4 | Drilling Efficiency Indicators, US Unconventional Oil & Gas, 2015 - 2018

Table 2-5 | Length of Laterals, 2015 - 2018 (feet)

STACK

Table 3-1 | STACK: Upstream Drilling Activity, 2015 - 2018

Table 3-2 | STACK: Selected Future Pipelines

Table 3-3 | STACK: Selected Land Acquisitions

Table 3-4 | STACK: Wells Drilled & Active Drilling Rigs by Resource, 2015 - 2018

Table 3-5 | STACK: Wells Drilled by Trajectory, 2015 - 2018

SCOOP

Table 4-1 | SCOOP: Upstream Drilling Activity, 2015 - 2018

Table 4-2 | SCOOP: Selected Future Pipelines

Table 4-3 | SCOOP: Selected Land Acquisitions

Table 4-4 | SCOOP: Wells Drilled & Active Drilling Rigs by Resource, 2015 - 2018

Table 4-5 | SCOOP: Wells Drilled by Trajectory, 2015 - 2018

OTHER AREAS

Table 5-1 | Other Areas: Upstream Drilling Activity, 2015 - 2018

Table 5-2 | Other Areas: Wells Drilled & Active Drilling Rigs by Resource, 2015 - 2018

Table 5-3 | Other Areas: Wells Drilled by Trajectory, 2015 - 2018

APPENDIX

Table 6-1 | Oklahoma Oil & Gas Drilling: Plays

Table 6-2 | Oklahoma Oil & Gas Drilling: Well Types

Table 6-3 | Oklahoma Oil & Gas Drilling: Resource Types

Table 6-4 | Abbreviations Used in Study

Table 6-5 | Macroeconomic Outlook, 2015 - 2018

Table 6-6 | Oil & Gas Production & Consumption, 2015 - 2018

List of Charts

EXECUTIVE SUMMARY

Figure 1-1 | Oklahoma Drilling Overview

OKLAHOMA OIL & GAS DRILLING OVERVIEW

Figure 2-1 | Key Trends in Oklahoma Oil & Gas Drilling

Figure 2-2 | Oklahoma: Wells Drilled by Play, 2006 - 2016 (wells)

Figure 2-3 | Oklahoma: Wells Drilled by Trajectory, 2006 - 2016 (percent)

Figure 2-4 | US versus Oklahoma Upstream Drilling Activity, 2006 - 2016 (wells)

Figure 2-5 | Oil & Gas Prices, 2006 - 2016

Figure 2-6 | Oklahoma: Drilling Speeds, 2006 - 2016 (drilling days per well)

STACK

Figure 3-1 | STACK: Key Trends

Figure 3-2 | STACK: Counties in Oklahoma

Figure 3-3 | Oklahoma & STACK Upstream Drilling Activity, 2006 - 2016

Figure 3-4 | STACK: Factors Impacting Drilling Activity

Figure 3-5 | STACK: Wells Drilled by Operator, 2016

Figure 3-6 | STACK: Wells Drilled by Trajectory, 2006 - 2016 (percent)

Figure 3-7 | STACK: Wells Drilled by County Heat Map

SCOOP

Figure 4-1 | SCOOP: Key Trends

Figure 4-2 | SCOOP: Counties in Oklahoma

Figure 4-3 | Oklahoma versus SCOOP Upstream Activity, 2006 - 2016 (wells)

Figure 4-4 | SCOOP: Factors Promoting Drilling Activity

Figure 4-5 | SCOOP: Wells Drilled by Operator, 2016

Figure 4-6 | SCOOP: Wells Drilled by Trajectory, 2006 - 2016 (percent)

Figure 4-7 | SCOOP: Wells Drilled by County Heat Map, 2016

OTHER AREAS

Figure 5-1 | Other Drilling Areas: Key Trends

Figure 5-2 | Arkoma Woodford & Granite Wash: Counties in Oklahoma

Figure 5-3 | Oklahoma & Other Areas Upstream Drilling Activity, 2006 - 2016 (wells)

Figure 5-4 | Other Areas: Wells Drilled by Operator, 2016

Figure 5-5 | Other Areas: Wells Drilled by Trajectory, 2006 - 2016 (percent)

Figure 5-6 | Other Areas: Wells Drilled by Location Heat Map

Oklahoma Oil and Gas Drilling Outlook: Drilling Activity by Wells and Rigs in STACK, SCOOP & Other Areas

Key Findings in the Oklahoma Oil and Gas Drilling Outlook Study:

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