Active rigs in Oklahoma's SCOOP/STACK hit a multiyear low this week, leading to a 2020 forecast of production remaining flat at best.
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The decline in activity follows a trend observed in several major North American plays, setting the stage for a tighter market and possibly stronger gas prices later this year.
The rig count in the SCOOP/STACK hit a new low last week, presenting downside risk to 2020 production. Rigs in the SCOOP/STACK hit an all-time high of 164 in December 2011 but now stand at 23, down 15 from last week, according to Enverus data. The average monthly rig count in the SCOOP/STACK has been falling since last May, from an average of 76 rigs to 30 so far in January.
Still, production in the play held at an average of 3.3 bcf/d to 3.4 Bcf/d during this time despite the monthly declines, according to S&P Global Platts Analytics. Platts Analytics' 2020 SCOOP/STACK production forecast now stands at 3.2 Bcf/d, down from 2019's average daily production of 3.4 Bcf/d.
Overall, total production in the Midcon Producing region, which includes the SCOOP/STACK, Cleveland Tonkawa, Mississippi Lime and Granite Wash plays, has held strong despite rig declines, averaging 6.8 Bcf/d during 2019. But Platts Analytics' forecast, based on current rig counts, calls for 2020 production in the Midcon Producing to average 6.6 Bcf/d over the course of the year.
Large year-over-year rig declines have occurred in most gas-rich basins, including the Marcellus, Utica and Haynesville, as well as in oil-rich basins, which produce high volumes of associated gas, such as the Eagle Ford and Permian. In those plays alone, rigs fell from 830 at this time in 2019 to 597, according to data by Enverus.
With Henry Hub spot prices dropping significantly over 2019, producers in gas-rich plays were at high risk of revenue loss. For example, a report by the Institute for Energy Economics and Financial Analysis determined that seven of the most prolific producers in Appalachia spent $500 million more on drilling wells than they collectively realized from selling gas, NGLs and oil during the third quarter of 2019.
"Production growth has not led to financial success," said Kathy Hipple, an IEEFA financial analyst and co-author of the report. "Despite booming output, Appalachian oil and gas companies have consistently failed to produce positive cash flow for the past five quarters straight."
"Analysts expect natural gas prices to remain depressed for the foreseeable future," said IEEFA analyst and report co-author Clark Williams-Derry. "Much of this glut comes from the Permian Basin, where it has become so uneconomic that many producers are simply burning the gas rather than selling it."
Many operators, however, intend to make spending cuts in 2020. For example, 49% of oil and gas support services companies are looking to decrease capital spending, compared with 36% of exploration and production firms, according to the latest Dallas Fed Energy Survey. At the same time, 24% of support services companies expect to increase capital spending, while 40% of E&P firms are looking to increase it. Of the 40% of E&P firms, only 10% are looking to "significantly boost" spending.
Although Henry Hub spot price was only $2.05/MMBtu as of Monday, about 50% of the oil and gas company executives responding to the survey believe Henry Hub will be trading between $2.50 and $2.99/MMBtu by year's end.