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Halliburton facility closure opens door for competitors in SCOOP, STACK

The closure of Halliburton Co.'s facility in El Reno, Okla., in December 2019 could open the door for in-state competitors. However, with fewer producers willing to battle the challenges of the SCOOP and STACK plays in Oklahoma, other services companies may need to follow Halliburton's lead.

Bankruptcy filings among oil and gas producers across the U.S. have jumped since the 2014 crude oil price downturn. After an initial wave of 114 bankruptcy filings between 2015 and 2016, the number decreased to just 24 in 2017 and 28 in 2018, law firm Haynes and Boone said. Filings picked up in 2019. From January through September, 33 oil and gas producers had filed for bankruptcy, the Texas-based firm said.

Other producers have scaled back operations, particularly in more challenging areas, in response to shareholder demands for greater returns.

The South Central Oklahoma Oil Province, known as the SCOOP, and the Sooner Trend, Anadarko, Canadian and Kingfisher play, known as the STACK, proved to be two challenging areas. Producers flocked to the area with hopes of replicating the shale production successes of the Permian, but difficult geologies made shale oil and gas recovery a challenge, and producers began significantly scaling back operations there.

Baker Hughes Co.'s weekly rig count data shows about 50 rigs operating in Oklahoma at the end of 2019, down from almost 150 in November 2018 and down from more than 200 at the beginning of 2015.

Across the Anadarko basin, well efficiencies and a reduction in drilled-but-uncompleted wells from 1,072 in January 2019 to 679 by November 2019, kept crude oil production climbing despite a declining rig count, but natural gas production declined sharply.

The Energy Information Administration's latest outlook calls for shale oil production in the Anadarko basin to slide from about 568,000 barrels per day in December 2019 to about 553,000 bbl/d in January, according to the agency's Dec. 16, 2019, "Drilling Productivity Report." Natural gas production in the region is expected to fall from 7.7 Bcf/d to 7.5 Bcf/d over the same period.

By contrast, the Texas rig count stood at 404 in the week to Dec. 27, 2019, according to Baker Hughes' rig count data, and the EIA expects 4.7 million bbl/d of crude production from the Permian in December 2019, up 1.3% from November 2019. January crude oil production is forecast at a similar 4.7 million bbl/d, while gas production of 16.9 Bcf/d in December 2019 will climb to 17.1 Bcf/d in January.

Caving to the region's challenges, Alta Mesa Resources Inc., the Oklahoma-focused producer headed by former Anadarko Petroleum Corp. Chairman Jim Hackett, and affiliate Alta Mesa Holdings LP filed for bankruptcy in September 2019.

At the time of the filing, the company said, "Despite considerable progress in reducing costs and improving well results, the companies continue to operate against a historically challenging commodity price environment and a capital market that is highly constrained for energy companies. Ultimately, these factors made bankruptcy protection the best option for the companies as they continue production operations while negotiating with their lenders."

Alta Mesa was a big user of Halliburton's services, industry consultant Spears & Associates said following Halliburton's decision to close its facility in El Reno.

The Spears analysts said the decision was in line with Halliburton's cost-saving strategy as the market for its services was negatively impacted by disappointing production in the SCOOP/STACK that forced its largest customers out of business.

"For some oil companies this is gonna sting like ripping a Band-Aid off," the firm said. "The region's number one supplier is now a hundred miles or more further away."

However, the closure of Halliburton's facility opens the door for competitors of the oilfield services major.

Data from Spears & Associates' sister company, Oilfield Logix, suggests the El Reno facility represented $25 million per month of Halliburton's top line. The facility was once the home of Halliburton's Remote Operations Command and Control Center used to monitor its well completion operations across various shale plays within Oklahoma and parts of Texas, Kansas and Colorado.

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The analysts estimated the total MidContinent oilfield equipment and service market will be about $10 billion in 2019, of which about $3 billion was the addressable market served by Halliburton out of its El Reno facility. Of that, $2 billion was for hydraulic fracturing.

Continental Resources Inc. was a big supporter of Halliburton's cementing and fracturing in Oklahoma, Spears & Associates said.

Continental reported third-quarter 2019 output in the SCOOP of 80,115 barrels of oil equivalent per day, a 27% jump from the same period a year earlier. Production in the STACK play totaled 53,070 boe/d, down 5% year over year.

"Approximately 50% of the company's third-quarter oil production growth year-over-year has come from our Oklahoma assets," company President Jack Stark said during an Oct. 31, 2019, earnings call.

Drilling efficiencies, however, have allowed Continental to reduce its rig count in Oklahoma from 19 to 12 rigs.