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Analysis: Underutilized permits in SCOOP/STACK provide upside to production

Denver — Drilling permits in Oklahoma's SCOOP/STACK plays have gone underutilized so far this year compared to recent history, with 20% still awaiting drilling and completions and creating a possible bump to production later in the year, according to data compiled by S&P Global Platts Analytics.

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So far this year producers are utilizing only 80% of the approved drilling permits they have received. Over the past four years, producers in the SCOOP/STACK year to date utilized on average 95% of the total approved horizontal drilling permits they received. In 2016 producers in the play utilized 100% of the approved permits they received, and even dipped into some of the unutilized approved permits from the prior year.

If the current utilization rate is increased to 85%, natural gas production in the SCOOP/STACK would increase by approximately 45 MMcf/d by year-end 2018 over the base case, according to Platts Analytics. By year-end 2023, the number jumps to 215 MMcf/d. At 95% utilization SCOOP/STACK gas production would increase by 130 MMcf/d by year-end 2018 over the base case.

By year-end 2019, a 95% utilization rate would yield an incremental 300 MMcf/d of gas production. Stretching that period to year-end 2023, an incremental 650 MMcf/d of new gas production would materialize with a 95% utilization rate of the currently approved drilling permits.




EXPECTED TO GROW TO 5.3 BCF/D BY 2023


Currently, natural gas production in the SCOOP/STACK is sitting at 3 Bcf/d. Based on the most recent rig activity, the region is projected to grow on average 0.7 Bcf/d in 2018 over 2017 and by a comparable amount in 2019 over 2018. Over the next five years, the basin is set to grow its natural gas production by 75%, averaging 5.3 Bcf/d by year-end 2023. While the SCOOP/STACK is an oil play, it produces a disproportionate amount of associated gas, and so the impact of the increased utilization rate is not as significant on crude production as it is on gas.

There are a number of ways producers in the SCOOP/STACK could increase their utilization rate of the approved drilling permits should they choose to do so. The first is by increasing the number of active rigs, which actually has been climbing steadily so far this year.


RIG COUNT EXPANDING BY THREE PER MONTH IN 2018


Year-to-date, the active rig count in the SCOOP/STACK has increased an average of three rigs per month. Producers could also try to improve the speed of their drilling rates. Active rigs in the SCOOP/STACK drill at a rate of one well per month.

While the SCOOP/STACK continues to break its own records on many fronts, whether through the number of active rigs or sample and total production volumes, there is still room for growth, evident in the number of un-utilized approved drilling permits.

The SCOOP/STACK currently has adequate processing and pipeline takeaway capacity, and more expansions and projects are scheduled to come online over the next few years to accommodate the anticipated growth. With current internal rates of return of 41% in the STACK and 24% in the SCOOP, the region is not expected to leave the spotlight anytime soon.

--Brandon Evans, bevans@spglobal.com

--Richard Frey, richard.frey@spglobal.com

--Edited by Gail Roberts, newsdesk@spglobal.com