COLUMN-Oklahoma is next destination for shale revolution: Kemp

Reuters

By John Kemp

LONDON, Oct 18 (Reuters) - Oklahoma is emerging as the nextbig shale oil play, with production growing faster than in anyother 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 160,000to 320,000 barrels per day, and is showing the sort ofexponential growth that characterised other big shale plays(Charts 1 and 2).

Like Texas and North Dakota, Oklahoma is an old, establishedoil- and gas-producing state. The state has produced more than15 billion barrels of oil since 1900, according to the OklahomaTax Commission and the Oklahoma Corporation Commission (OCC),which regulates the industry.

In 2009, the state's landscape was punctured by more than32,000 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 continuouslysince the mid-1980s owing to falling pressure in the oilfieldsand lack of investment.

But since 2005, output has started to rise again, asinvestment, drilling and workovers have risen in response toincreased oil prices.

More recently, the increase in output has accelerated, asexploration and production firms begin to drill into theenormous Woodford shale formation that lies underneath largeparts of the state.

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According to the U.S. Energy Information Administration(EIA), there are three highly prospective shale plays in thestate: the Ardmore, Arkoma and Cana basins, all of which containparts of the Woodford formation.

Baker Hughes rig counts show there were 32 rigs drilling foroil in the Ardmore and Cana basins in mid-October, up from justsix at the same point in 2011.

Continental Resources, the leading shale oilproducer in the Williston Basin beneath North Dakota andMontana, revealed last year its next big target for developmentis an area southeast of the Cana play it has dubbed the SouthCentral 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 billionbarrels of oil in place.

While the company has an obvious interest in talking upprospective production from the acres it has already leased, itsoptimistic estimates for North Dakota's Bakken have proved moreaccurate than many more conservative forecasters.

Continental has already leased 277,000 acres (112,000hectares) in the area, either on its own or in combination withother developers, according to a presentation it made availableto investors in October and available on the company's website.

The company has participated in the drilling and completionof 93 wells, and is busy delineating the oil-, gas- andliquids-rich parts ("fairways") of the play, as well asidentifying the most productive areas.

The company's share of output from those wells hit 17,550barrels 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 than50,000 barrels per day since the start of the year, though theincrease stalled in June and July.

Continental has one of the most successful track records inthe shale business.

The company has pioneered a highly efficient, assembly-lineapproach to drilling and fracturing in the Bakken formation thatcut costs and raised production quickly. It claims to be able toachieve rates of return of over 20 percent on a typical shalewell with prices as low as $60 per barrel.

If Continental can bring the same approach to SCOOP, thestate's oil and liquids output is set to rise rapidly.

Oklahoma has other attractive petroleum-rich tight oilformations, such as the Mississippian, which have alreadyattracted strong interest from other specialist shale productioncompanies, notably Devon Energy, the pioneer of shaleproduction in Texas.

The state is ideally located for a big increase inproduction. Unlike remote North Dakota, Oklahoma is alreadycrisscrossed by an extensive network of oil-gathering pipelinesand hosts the country's major crude storage and trading hub atCushing, with 80 million barrels of storage capacity andextensive links to refineries in the Midwest and Gulf Coast.

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