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SCOOP-STACK drilling activity hits 20-month high in bullish outlook for 2022

Highlights

Rig count hits 41, highest since pre-pandemic: Enverus

Production tops 3.8 Bcf/d, matching March 2020 level

Devon sees larger capex share for Okla. acreage in 2022

Gas production from the SCOOP-STACK shale of Oklahoma looks poised for growth in 2022, as improving well economics prompt acreage holders to bring capital and drilling rigs back to the basin.

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Over the past five months, upstream investments in the SCOOP-STACK have surged.

In the week ended Nov. 17, the rig count there climbed to a 20-month high at 41 – up from just 25 rigs this summer and a dramatic turnaround from the basin's pandemic-fueled decline to just eight drilling rigs in July 2020, recent data published by Enverus shows.

Growing interest in the Oklahoma shale has accompanied a steady rise in producer internal rates of return. In October, estimated half-cycle, post-tax IRRs edged up to nearly 41% in the STACK and about 37% in the SCOOP. At their lows in 2020, returns in both basins briefly turned negative and hovered in the single digits for months, S&P Global Platts Analytics' most recent IRR analysis shows.

The dramatic turnaround in Oklahoma producers' fortunes already appears to be having a bottom-line impact. November to date, gas production from the SCOOP-STACK has averaged about 3.85 Bcf/d – its highest since March 2020 and about 150 MMcf/d above its year-ago level, Platts Analytics data shows.

Next year, production looks poised to continue moving higher.

2022 outlook

On recent third-quarter earnings calls, some of the basin's most prominent producers offered field-level insights on the SCOOP-STACK's potential for growth through year-end 2021 and beyond.

On a Nov. 3 conference call with investors and analysts, executives at Devon Energy highlighted the company's performance in Oklahoma this year saying that its acreage there would likely merit a larger share of its capital expenditure in 2022 than it received this year.

Devon currently operates a two-rig program across its concentrated 300,000 net-acre position in a liquids-rich window that straddles portions of Canadian, Blaine and Kingfisher County. As part of a $100 million drilling-carry partnership with Dow, the company is funding some 30 new wells there this year.

On its own third-quarter conference call, executives at Gulfport Energy also underscored the company's performance in the SCOOP, noting a 12% increase in production from the second quarter 2021.

"The wells are declining at a slower rate than budgeted," Tim Cutt, CEO and Chairman of Gulfport said on the Nov. 3 call. "We attribute the improved performance to wider spacing and longer laterals and are pleased with the results to date," he said.

Gulfport operates a 1-rig program across its 73,000 net acre position in the SCOOP. The company plans to conclude 2021 with 11 gross wells turned to sales for the year.

In the midcontinent, strong forward gas price for 2022 could offer Gulfport, Devon and other producers sufficient incentive to continue growing production in SCOOP-STACK next year.

At the NGPL Midcontinent hub, first-quarter 2022 strip prices are currently trading at $4.92/MMBtu as of market settlement Nov. 18. For the second, third and fourth quarters, NGPL is priced notably lower, but relatively flat at an average $3.73/MMBtu, S&P Global Platts' most recently published M2MS forwards data shows.