Published by Julie Parker on December 05, 2017
Continental Resources recently announced a record-setting density project in the SCOOP Woodford Condensate fairway. The Sympson 10-well project reportedly had a combined 24-hour peak of 47,701 BOE, an Oklahoma density unit record according to Continental. Although this project garnered the most attention, it was Continental’s 3rd 10-well density project in the SCOOP Woodford thus signaling the Company’s sustained confidence in the opportunity it sees in its assets there.
It’s been said that opportunities don’t happen, one creates them. The recent CLR announcement got me to thinking about Opportunity, in general, and specifically, the potential of Woodford Condensate development and production. When I think about Opportunity, it has elements of the right timing, location, vision, and risk, as well as patience. Throughout my research on this area, I see the opportunity Continental is creating with its Woodford acreage and thought it might be interesting to analyze the Sympson Unit announcement through the elemental lens of “Opportunity.”
Let’s begin with Location. Obviously, without the optimal location, the Sympson wells wouldn’t have made the Oklahoma record books. Back in mid-2011 Continental embarked on a covert leasing operation focusing on the thick oil and condensate-rich areas of the Cana-Woodford in Carter, Stephens, Garvin, and Grady counties – historically some of Oklahoma’s top oil-producing areas. The cumulative production map illustrates locations of wells that were active and producing during January-May 2017.
By late 2012, CLR had amassed nearly 200,000 net acres, and the SCOOP (South Central Oklahoma Oil Province) was unveiled. A map released during a Continental investor presentation in 2014 depicts their leasehold within the Woodford production zones, including the Condensate Fairway delineated by the dashed lines. Today, CLR reports having nearly 300,00 net reservoir acres within the Woodford SCOOP with just over 50% held by production.
The Sympson Unit wells, as well as the other density wells, are in the northeast corner of Stephens County (T2N, R5W). An older density well pattern, Newy, lies across the county line in southeastern Grady County. The Honeycutt and Poteet wells are the other 10-well density patterns (completion records show nine wells each for Honeycutt and Poteet) Vanarkel appears to be a 6-well pattern. See
SCOOP Density figure 1 & SCOOP Density figure 2
From the outset, Continental was bullish on the SCOOP’s potential and with good reason. In 2010, the USGS estimated the Woodford Shale held as much as 400 million barrels of recoverable oil and nearly 250 million barrels of condensate. On the downside, the Cana-Woodford had been characterized as geologically complex with deep reservoirs ranging in thickness from 100-400 feet, which meant drilling and development would be expensive and technically challenging. According to Halliburton, Woodford’s geologic complexity and mineralogy affect nearly every facet of drilling and completion, especially in horizontal drilling. Schlumberger also faced significant challenges in fracking intervals measuring 200 feet or more. There was no shortage of risk in developing the Play and expenses were, indeed, high. In 2012, CLR spent $9.5-$10 million individually on its early SCOOP wells.
Bearing the financial and operational challenges in mind, Continental determined the SCOOP’s potential outweighed the risks. In 2013, SCOOP development garnered nearly 15% of the Company’s $3.4 billion CAPEX budget. As for risk, the company had seen similar geologic and technical trials during the development of its premier Bakken play and were confident their expertise and technology in the area would pay off. They also knew development costs would have to be decreased to put the company in the best position to manage the risks associated with moving forward with drilling and completions. Their first move was to drill with longer laterals, in multiple zones, and with increased densities.
The Sympson is a dual zone, a 2-mile long unit containing 14 wells creating a 10-well pattern. Two one-mile parent wells and 12 children wells of various lengths were required to fill in the 10-well 1,280-acre unit pattern. The result the equivalent of 5 wells in the Upper Woodford and five wells in the Lower Woodford. The 12 new wells produced at an average 24-hour peak production rate of 3,145 Boe per day (11% oil), and on average the wells are performing in line with the 2.3 MMBoe type curve. See Sympson - Figure 4
If you saw my last article on the Arkoma STACK, you’ll remember the operator exodus from the play around 2008-10 as the market for dry gas declined. Dry gas producers in the Anadarko were also affected by this downturn, and most were forced to refocus on more profitable projects elsewhere. Continental was no exception, however, in their case, the demise of the dry gas plays gave rise to the SCOOP. In fact, an internal competition for capital resources drove the genesis of their SCOOP development. The timing was right. The company shifted resources and began working the southern part of Grady County where they found and developed large oil and condensate wells on par with those the company had been drilling in the Bakken.
Rising oil prices also contributed to SCOOP development. In 2012, Continental predicted that by 2017 SCOOP would generate 40%-55% ROR based upon $3.50-Mcf gas and $90-bbl oil thus contributing to the company’s 3 million boed goal. In its November 2017 Investor Update, Continental reported SCOOP Woodford Condensate approximate ROR at 70% based on $50-bbl oil (WTI) and $3.25-Mcf gas.
Timing also affected the growth of the SCOOP operationally, particularly development of the Woodford. Oklahoma’s 2011 authorization of multi-unit drilling, allowed for lateral lengths of more than 1 mile as well as multi-well pad drilling. These improvements enabled operators to gain efficiencies in drilling and completions and ultimately, lower production costs and have been key in the development of the SCOOP. See SCOOP Condensate Graph - Figure 5
Sometimes patience is needed for an opportunity to be fully realized. Such is the case for the SCOOP Woodford Condensate. With oil prices around half of what they were in 2012 when the Play was announced, it may be quite awhile before its full potential manifests. Continental (and other operators in the Play) are determined to prove up their assets but are in no hurry to drill and complete expensive Woodford Condensate wells. They’re waiting for the moment when oil price, development expenses, market demand, technological and operational capabilities are in range before making any big moves. Outstanding results such as the Sympson wells underscore confidence in the Play, but the timing still isn’t right for large-scale testing and development. Until then, Woodford Condensate will be a “hold card.”
But, this isn’t to say the Sympson wells were Continental’s only activity in the area. Two other notable completions in the SCOOP Woodford condensate window were the Renea 1-23-14XH and Cottonwood East 1-25-24XH wells. The Renea’s 24-hour IP was 2,322 Boe per day (18% oil) from a 10,160-foot lateral. The Cottonwood East’s 24-hour IP was 1,918 (34% oil) from a 7,800-foot lateral. According to Continental, The Renea and Cottonwood outperformed legacy offset wells by 80% to 90% during their first 30 days. They are in an area of Stephens County where the Company has not been active for the past two years. Patient, measured execution. See Woodford Renea figure 6
The significant production coming from Continental’s SCOOP assets are the result of locations they acquired almost a decade ago. By 2012, the Play’s promise began to take shape after the company had de-risked some 600 square miles and proclaimed the SCOOP as a “huge resource play” and a “broad and repeatable liquids fairway.” The SCOOP was anticipated to generate 40%-55% rates of return based on $3.50-Mcf gas and $90-bbl oil. By 2015, oil prices had collapsed, and the SCOOP vision dimmed. Continental and other operators who had entered the Play such as Newfield, Cimarex, and Marathon were confident in the SCOOP opportunity, but the timing wasn’t right, and the risks were too great to allocate precious CAPEX to development of the Woodford.
But, a new opportunity for the Woodford Condensate play may be on the horizon. With the lifting of the U.S. oil export ban two years ago this month, a new market for U.S. condensate may be emerging. Exports of condensate, NGL’s, and oil are on the rise. In fact, oil exports have steadily risen during the past two years hitting a record 2.1 million bpd this quarter. Additionally, 6 million bpd of liquids were exported. Could condensate become another potential export product for CLR and others seeking to realize their vision of SCOOP development? Harold Hamm, Continental Chairman, and CEO believes exports will change the optics many operators have for their production saying “International markets are demonstrating an accelerated interest in American light sweet oil, and Continental is currently negotiating additional potential sales. This is the new reality of the United States as a world energy leader.”
Sounds like opportunity’s knocking.