By John Kemp
LONDON, Oct 18 (Reuters) - 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.