Denver—After rebounding sharply from the February freeze-off, gas production in the SCOOP/STACK could face downward pressure this summer as legacy rig declines begin weighing on upstream productivity.
Month to date, output from the Oklahoma shale basin has shown surprising strength, averaging about 3.7 Bcf/d–up sharply from a more than three-year low in February at just 2.8 Bcf/d.Prior to last month's freeze-off, SCOOP/STACK production was actually lower, averaging about 3.6 Bcf/d.
Over the past nine months, output from the SCOOP/STACK has outperformed expectations. Last spring, production there fell by more than 20% from levels over 4 Bcf/d as a pandemic-fueled supply glut in the global oil market crushed commodity prices, precipitating a historic pullback in US upstream investment.
In the SCOOP/STACK, producers pulled some 35 drilling rigs from basin, leaving just nine in operation from late May through mid-July. Since then, the rig count there has doubled to 18 currently, but remains well below pre-pandemic levels at over 40 rigs, data published by Enverus shows.
While production from the Oklahoma basin has shown surprising resiliency in recent months, S&P Global Platts Analytics is still anticipating a steady decline there this year, followed by a flattening in output at sustained lower levels through the mid-2020s. According to recent analysis, current rig level should pull output down to the low-3 Bcf/d range by the fourth quarter.
Declining interestWhile comparatively higher-margin shale basins like the Permian and Haynesville have seen a surge in drilling activity since last summer's fallout, the SCOOP/STACK has lagged.
In the Permian, the current rig count at 224 now stands at roughly 52% of its first-quarter 2021 high. In the Haynesville, where rig numbers hit 50 last month, activity now exceeds its pre-pandemic level.
For producers operating in the post-pandemic era, reliable high-margin returns have become an increasingly key metric needed to justify incremental investments and capital spending–particularly for those that publicly report earnings to investors and analysts.
In the Permian, an average producer's half-cycle, post-tax internal rate of return is currently estimated in a range of 28%-34%, depending on location. In the Haynesville, an average producer's IRR tops 20%. By comparison, producers in the SCOOP/STACK earn anywhere 17.5% to about 19%, data from Platts Analytics shows.
For a basin once considered "the next Permian," the SCOOP/STACK has fallen out of favor recently as varying rock quality and often unpredictable, disappointing rates of return have seen major acreage holders pause drilling activity there. Heading into the mid-2020s, a major turnaround for the basin would likely require a significant financial commitment from some of its largest acreage holders like Continental Resources, Devon Energy and Cimarex Energy–all of which hold competing investments in more profitable US basins.
