NEW YORK (Reuters) – He promised to be the next major play, but a rich oil-and-gas area in central and southern Oklahoma impressed many of the producers there, and gave one of the champions most of his attention is that his business may be difficult to survive.
In recent years, the SCOOP basins (Central East Oklahoma Oklahoma) and the STACK basins (Early Childhood Trend, Anadarko, Canada and Kingfisher) attracted producers and private equity firms willing to spend billions of dollars on which many people considered the first Permian harbor, the largest and most promising oil field in the United States.
However, while many oil sequences have replicated the Permian, the geology of the region has been more inconsistent, reducing yields and making shale areas high cost to producers.
Alta Mesa Resources Inc, who made a $ 3.8 billion investment in the oil park said about $ 30 million in two years, last month he could not be able to pay creditors.
Others are declining: Devon Energy Corp, for example, cutting capital expenditure earmarked for its STACK position to 20% of the total in 2019 from 31% in 2018, according to Reuters calculations based on the company's presentation. The re-allocation aims to improve cash flow from the STACK and target investment where returns are better, spokesman Tim Hartley said.
Cimarex Energy has also predicted a reduction in spending to 15% in the region in 2019, down from 30% last year, company presentations showed.
“As we were living within cash flow, we had only a higher level of confidence and decided to put more of our capital into the Delaware Basin this year,” said Thomas Jorden, chief executive of Cimarex, in the first quarter earnings call.
Producers are also narrowing development in areas with improved wells: Marathon Oil Corp and Continental Resources have recently had activities on two sub-areas – the STACK-Meramec and SCOOP Woodford.
Geology is looking forward to “Permian Jr”: Exploration wells towards uniform rocks produced high levels of oil, but instead underground producers had more complexity, and production production was towards gas – at a time when glut global and stubbornly low prices for the commodity.
“SCOOP / STACK is not a traditional shale play, so when you think about its development, there are a number of different rock types,” said Denise Yee, Vice President at the RS Energy Group consultancy. “Because it is so complex, the hydrocarbon mixture varies across the play, and the oil window is limited.”
A further disappointment was the subsequent effects of wells. More than any other shale basin, perhaps, the SCOOP / STACK has a condition called the “parent / child” problem, where secondary wells have less oil than the original well.
These problems are reflected in the medium to medium term price required to cover costs in the SCOOP and STACK, according to data from the Rystad Energy consultancy. Since the beginning of 2018, this price equates to $ 54.53 and $ 53.15 per oil barrel, respectively, higher than the Permian, Bakken, Denver-Julesburg (DJ), and most of the basins Ford Eagle shale.
“The nickname‘ Permian Jr ’decided some high expectations,” said Shak Ahmed, research analyst at RS Energy. “It is the expected play about what he is able to relocate, and although this will not be painless, it will be better in the long run.”
For smaller firms, and in particular those supported by private equity, testing of design resources is limited by a lack of financial resources. Some of them are now trying to merge or sell operations.
EnCap Investments and Partners Natural Gas (NGP) are examining the assets of SCOOP / STACK, and sources that are familiar with the subject. Roan Resources, whose shares are trading under $ 1.50, said from more than $ 16 last year, in April he was studying options after receiving inquiries about a potential sale or in-harbor merger.
EnCap refused to comment. NGP did not respond to comments.
The purchase of $ 500 billion Newfield Exploration, which had the lowest weight weights in the STACK in 2017-18, is expected as well as operations in North Dakota and Utah, at Encana Corp that hopes that some dealings will be possible.
“The most important thing in the SCOOP / STACK is not on scale, as it is in the Permian where the stewards have a large number of prizes, but they have the best rock, and are effective in what you do, ”Said Timothy Perry, co for the head of global oil and gas investment banking at Credit Suisse, who advised on Encana on the market.
Reporting by David French; edited by Gary McWilliams and Leslie Adler
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