If you follow the oil markets as I do, you might have heard that the Permian Basin in West Texas is the most prolific oil basin in the U.S. But the Permian has a big problem.
Producers are unable to get any more oil out.
Yes, there’s plenty more oil there. But the Permian has run out of takeaway pipeline capacity.
New pipeline projects won’t be ready until 2020. That means producers have had to severely discount their Permian crude destined for Gulf Coast refineries. For instance, on September 4, WTI Midland oil traded a discount of $23.95 per barrel to Magellan East Houston oil.
Those discounts come right off of a producer’s bottom-line profits. If you’re an investor, think of it as coming right off of your share price.
Oklahoma producers don’t have those problems. Sooner State exploration and production companies are laughing all the way to Cushing, Oklahoma.
Today there are several major oil plays in Oklahoma, referred to as the SCOOP, STACK, SCORE and Merge plays.
The STACK play acronym comes from the Sooner Trend oil field, Anadarko Basin, and Canadian and Kingfisher counties. Unlike the Granite Wash, Eagle Ford or Bakken, STACK isn’t a geological formation but a geographic area.
The SCOOP (South Central Oklahoma Oil Province) play is a geological formation. It’s also located in the Anadarko Basin.
The SCORE (Sycamore, Caney, Osage Resource Expansion) play is the sole idea of Newfield Exploration. Steve Campbell, a senior VP at Newfield, said Newfield was currently leasing 350,000 acres in the Anadarko Basin.
“It is the equivalent of 1 million net effective acres when all the multiple stacked horizons are considered,” he said. Newfield plans to invest $365 million to further delineate its SCORE acreage and different play levels.
Lastly, the Merge play is where STACK and SCOOP come together – hence “merge.”
Pipelines in the Right Places
Unlike West Texas’ pipeline-limited Permian, Oklahoma pipeline companies are staying ahead of producer capacity demand. They are doing this in the face of initial production rates that are similar to those in the Eagle Ford and Permian plays.
Since 2013, Oklahoma producers have invested in higher production well completions. They are also focused on the core acreage in the Oklahoma plays. That has resulted in a 70% increase in initial production rates.
Currently there are 139 rigs operating in Oklahoma. Most of them are in the SCOOP and STACK formations. And I think we’re going to see rapid growth in Oklahoma’s other plays as well.
Producers with acreage in the SCOOP, STACK, SCORE and Merge plays will begin to shift drill rigs there from the backlogged Permian.
Both Newfield Exploration Co. (NYSE: NFX) and EOG Resources Inc. (NYSE: EOG) are a great way to play the growing oil boom in Oklahoma.