Denver — As natural gas production volumes in the SCOOP/STACK struck a record high this week, operators in the Oklahoma play are indicating plans to continue accelerating growth throughout 2019 despite uncertainty surrounding commodity prices.
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Production in the SCOOP/STACK set a new daily record of 3.53 Bcf/d on Monday, according to S&P Global Platts Analytics. Despite the Polar Vortex striking the region last week, production volumes were hardly phased by freeze-offs at wellheads. And any decline which may have occurred from the frigid weather was quickly reversed.
Platts Analytics models show production dropping late last week as population-weighted temps fell as low as 8 degrees. However, it only dropped by 65 MMcf/d from the previous two-week average to 3.41 Bcf/d, which is within the bounds of normal volatility. The cold weather had much less of an impact on production in the region than in the past. For example, last January, when population-weighted temperatures in Oklahoma dipped to an average of 3 degrees, production plummeted by more than 500 MMcf/d before recovering once average temps rose to 30 degrees.
A primary driver of the most recent growth in the region has been in Grady County, located over what is referred to as the SCOOP. Sample production is averaging 610 MMcf/d this month to date, which would be a new record if it continues, surpassing last month's record of 587 MMcf/d, according to Platts Analytics.
Total SCOOP/STACK production is forecast to grow about 300 MMcf/d from current levels by this time next year.
However, WTI's recent price decline could jeopardize this. For instance, Grady County has averaged just 23 active rigs over the past month, down from 29 over the previous six months. Across the entire SCOOP/STACK, the active rig count has averaged 104 over the past month, down slightly from the 107 rig average throughout the back half of 2018.
MORE WITH LESS
However, producers have been able to produce more with less due to perpetual improvements in drilling and completion techniques. Also, just over a year ago, the state of Oklahoma passed a new law allowing for operators to drill longer laterals in all geologic formations.
Private oil and gas producer Chaparral Energy, which operators solely in the Anadarko Basin, increased its production in the STACK during the fourth quarter of 2018 by 60% compared to the fourth quarter of 2017 while only adding one additional rig, according to its latest operational update.
"Although the recent drop in commodity prices has created uncertainty in the market, we remain focused on delivering exceptional operational results and profitable production growth while minimizing costs," said CEO Earl Reynolds. "We are currently working with our board to finalize our 2019 business plan as we look at various capital program alternatives, which adhere to our strategic objectives of profitably growing production and delivering strong returns through intense focus on execution and costs, while maintaining more than sufficient liquidity."
One way companies can maintain profits during price downturns is through hedging. Chaparral, for instance, has 760,000 barrels of oil in 2019 hedged at $53.88 and 2.1 billion Btu of natural gas hedged at $3.02.
The Anadarko Basin also has more technically recoverable reserves of minerals than previously thought. A study released last month by IHS Markit found it holds 16 billion barrels of oil and 200 Tcf of natural gas. What's more, the study found only about 20% of locations in the STACK play have been drilled or developed.
Newfield Exploration, another independent producer in the Anadarko Basin, reported in its most recent Form 8-K filing with the Securities and Exchange Commission that its proven reserves were up 15% to more than 780 million barrels of oil equivalent compared to one year ago.
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