Tight oil opportunity update: the Permian is only part of it

Although West Texas is consuming over 30% of all Lower 48 capex this year, the Bakken, Eagle Ford, SCOOP/STACK and Powder River Basin account for another 25% of total US onshore spend in 2017. With investors increasingly focused on tight oil activity outside of the Permian, what does the future look like for these key plays?

Bakken

"Are well performance gains real, and what does that mean for activity over the next 12 months?"
They are, and activity has already started growing. North Dakota production is up nearly 100 kb/d this year, and our North America Well Analysis Tool shows that 90-day production rates from Dunn County wells were at an all-time high in Q4 2016. New high-efficiency wells — using high concentrations of friction-reducing fluids and particulate diverters — are also more common.

Looking forward, private equity groups that made hefty returns selling Permian properties this year are now targeting the Bakken. Refracturing programmes are here for the foreseeable future, and Marathon in particular is known to have tested three different Bakken refracturing configurations.

SCOOP/STACK Anadarko Basin

"Are we seeing well performance issues away from Tier 1 acreage, and will PE-funded projects find willing buyers?"
Yes and yes. The largest risk of STACK step-out drilling is variability in oil cuts. Finding the right landing zone is also key, so seeing low averages and high skewness in appraisal well data sets is the norm. Another issue is high water production from the Mississippian intervals. Although Newfield claims minimal formation water in its core areas, we have witnessed water to oil ratios as high as 20:1 in Garfield County.

Private equity has been particularly interested in eastern SCOOP acreage around Garvin County, but most of the value in SCOOP/STACK projects resides in future drilling. Because tight oil projects in the Anadarko Basin tend to be scattered and require more transactions for an operator to establish scale, key value-proving appraisal and delineation wells for PE-funded operators should be intently watched.

Powder River Basin

"What does Wood Mackenzie think of this new play? Chesapeake and Devon are sending strong signals."
We like the potential of nine stacked reservoirs in the basin, and lower service costs and cheaper completions have pushed this basin to the top of our watch list. Both investors and geoscientists are interested in the 5,000 ft (1,500 m) of overpressured, oil-bearing strata where the Mowry and Niobrara zones are source rocks and all other Cretaceous sand zones act as reservoirs.

Peak, Wave and Ballard have drilled some particularly productive wells into the Turner sands, and one reportedly tested over 2,000 b/d. Wildcats are planned this year along the Montana border, as well.

We fully anticipate private equity to be recycled into this basin from the Permian too. Watch for rapid acreage de-risking. Exploration and appraisal costs are low, and we model many zones breaking even near US$50/bbl at today's development well costs.

Eagle Ford

"Rigs are coming back, but is there an inventory issue just around the corner? Help me understand how the play is maturing."
There are some complex pieces to this puzzle. The table below shows that the most economic sub-plays — Edwards Condensate and Karnes Trough — face the largest inventory challenges, but given the reduced level of drilling today, a decade of drilling still remains. However, this number could quickly be cut by 50% with a doubling of the rig count.

Increased drilling efficiency has led to 80% more wells drilled per rig per year, which could further accelerate how fast inventory is worked through. However, some players feel that 40-acre spacing has proven to be value destructive. Our base models range between 60 and 120-acre spacing, depending on sub-play.