By John Kemp
LONDON Oct 18 Oklahoma is emerging as the next
big shale oil play, with production growing faster than in any
other U.S. state apart from Texas and North Dakota.
Thanks in big part to shale, the state's oil output in May,
June and July hit the highest level since January 1990.
Oil output has doubled since the start of 2010, from 160,000
to 320,000 barrels per day, and is showing the sort of
exponential growth that characterised other big shale plays
(Charts 1 and 2).
Like Texas and North Dakota, Oklahoma is an old, established
oil- and gas-producing state. The state has produced more than
15 billion barrels of oil since 1900, according to the Oklahoma
Tax Commission and the Oklahoma Corporation Commission (OCC),
which regulates the industry.
In 2009, the state's landscape was punctured by more than
32,000 oil wells, almost 9 percent of the U.S. total. Only Texas
(with 142,000 wells) and California (with 49,000) had more.
Conventional crude output has been declining continuously
since the mid-1980s owing to falling pressure in the oilfields
and lack of investment.
But since 2005, output has started to rise again, as
investment, drilling and workovers have risen in response to
increased oil prices.
More recently, the increase in output has accelerated, as
exploration and production firms begin to drill into the
enormous Woodford shale formation that lies underneath large
parts of the state.
According to the U.S. Energy Information Administration
(EIA), there are three highly prospective shale plays in the
state: the Ardmore, Arkoma and Cana basins, all of which contain
parts of the Woodford formation.
Baker Hughes rig counts show there were 32 rigs drilling for
oil in the Ardmore and Cana basins in mid-October, up from just
six at the same point in 2011.
Continental Resources, the leading shale oil
producer in the Williston Basin beneath North Dakota and
Montana, revealed last year its next big target for development
is an area southeast of the Cana play it has dubbed the South
Central Oklahoma Oil Province (SCOOP).
SCOOP is a world-class resource, according to the company,
with an oil-rich shale formation up to 400 feet (122 metres)
thick. Continental estimates SCOOP contains up to 70 billion
barrels of oil in place.
While the company has an obvious interest in talking up
prospective production from the acres it has already leased, its
optimistic estimates for North Dakota's Bakken have proved more
accurate than many more conservative forecasters.
Continental has already leased 277,000 acres (112,000
hectares) in the area, either on its own or in combination with
other developers, according to a presentation it made available
to investors in October and available on the company's website.
The company has participated in the drilling and completion
of 93 wells, and is busy delineating the oil-, gas- and
liquids-rich parts ("fairways") of the play, as well as
identifying the most productive areas.
The company's share of output from those wells hit 17,550
barrels of oil equivalent per day in the second quarter of 2013,
up more than 400 percent compared with a year earlier.
State oil output is now rising rapidly, up by more than
50,000 barrels per day since the start of the year, though the
increase stalled in June and July.
Continental has one of the most successful track records in
the shale business.
The company has pioneered a highly efficient, assembly-line
approach to drilling and fracturing in the Bakken formation that
cut costs and raised production quickly. It claims to be able to
achieve rates of return of over 20 percent on a typical shale
well with prices as low as $60 per barrel.
If Continental can bring the same approach to SCOOP, the
state's oil and liquids output is set to rise rapidly.
Oklahoma has other attractive petroleum-rich tight oil
formations, such as the Mississippian, which have already
attracted strong interest from other specialist shale production
companies, notably Devon Energy, the pioneer of shale
production in Texas.
The state is ideally located for a big increase in
production. Unlike remote North Dakota, Oklahoma is already
crisscrossed by an extensive network of oil-gathering pipelines
and hosts the country's major crude storage and trading hub at
Cushing, with 80 million barrels of storage capacity and
extensive links to refineries in the Midwest and Gulf Coast.