With breakevens ranging from USD29–43/bbl, Oklahoma’s SCOOP/STACK shale plays are living up to their reputation as the US’s hottest new area for horizontal development. Since 2013, more effective completion designs and core area development have yielded a ~70% increase in initial production (IP) rates, which are now competitive with rates for the Permian and Eagle Ford. Rig activity in the area is also reaching above 100 rigs and all-time highs, with recent interest on expanding beyond core areas to the northwest STACK and Merge plays.

Exhibit 1: Map of SCOOP/STACK sub-basins

SOURCE: McKinsey Energy Insights, RS data, Team Analysis

STACK: higher IP rates from the over-pressured area

Horizontal development of the STACK area began in the Cana-Woodford in 2007, with activity in Logan and Payne counties to the east picking up several years later. In late 2013, operators discovered the opportunities of Meramec formation and shifted their focus to the core areas in Kingfisher and Blaine County, and have been focusing on this area since.

Wells within the core are drilled in the Woodford and Meramec formations, though the best IP rates are found in Meramec wells in the over-pressured zone, which boasted an average peak month IP rate of almost 900 bbl/d in 2016. Due to the increased depth, higher pressure gradient, and the need to run a third casing string, drilling and completion (D&C) costs in the over-pressured area can be over USD1 million higher than in normally-pressured areas, although over-pressured wells achieve better IP rates. Since 2014, operators have been improving completion design in both normally-pressured and over-pressured zones, and pumping 27% and 15% more proppant from 2015 to 2016, respectively. The new completion design appears to be more successful in over-pressured zone with 35% jump in peak oil IP rate per lateral.

Exhibit 2: Core STACK: over-pressured zone yields better productivity

SOURCE: McKinsey Energy Insights, RS Data, Expert Interview

SCOOP: productivity improves while moving to gassier area

Wells within SCOOP can be classified based on fluid type and will fall into either an oil, gas, or condensate window based on initial gas/oil ratio (GOR). Drilling activity has been mainly concentrated in the core condensate window, consistently garnering around two thirds of all new wells from 2014–2016. Since 2014, operators in the core SCOOP condensate have been using similar approaches used in core STACK to increase IP rates, especially when it comes to proppant intensity, which has increased by two thirds.

The liquids percentage of peak month production has been decreasing since the second half of 2014 as operators are moving to gassier areas. For these wells, improvement over time can be better seen on a barrel of oil equivalent (BOE) basis, as oil IP rates do not increase significantly. Unlike core STACK, the average lateral length in the condensate window has shown a 34% increase from 2014–2016, which is also contributing to higher IP rates.

Exhibit 3: Core SCOOP: improving completion design leads to better productivity while moving to gassier areas

SOURCE: McKinsey Energy Insights, RS data

How do SCOOP/STACK compare to other basins?

SCOOP and STACK have recently become more attractive options for onshore shale operators due to their high IP rates and low water production especially in core STACK with a water/oil ratio (WOR) of less than 3. The breakeven prices for the core liquid areas within SCOOP and STACK make them competitive to that of the Permian and Eagle Ford basins. The upper range of breakeven prices for core STACK hold their own against other core light tight oil (LTO) basins, while the economics of SCOOP condensate wells help the area compete with the best acreages in some core condensate sub-basins. It is clear why operators have been giving this area so much attention, and how operators continue to improve the completion design and productivity.

Exhibit 4: Comparison: SCOOP/STACK is competitive to other major shale basins

SOURCE: McKinsey Energy Insights, BHI

Looking at rig count over time shows that the area has seen an all-time high in 2017 and has been keeping pace with the Permian on a normalized growth basis as it recovers from 2016 lows. Also, there has been a recent interest in the emerging NW STACK and the Merge area, accounting for over 30% of the drilling activities since mid-2016, and may unlock another potential core acreage.