- Associated Press - Monday, August 28, 2017

OKLAHOMA CITY (AP) - Efficiency is the name of the game for Oklahoma drillers and out-of-state companies drilling wells in Oklahoma.

Lessons learned during the two-and-a-half-year downturn have helped boost some oil and gas businesses. The rate of drilling has increased since December in several plays, with Oklahoma accounting for the second-highest rise, said energy economist James Williams.

But the rise likely will be tempered by oil prices, said Williams, founder of WTRG Economics, an analysis firm based in London, Arkansas. Oklahoma Oil and Gas Association Executive Vice President Arnella Karges said some of her trade group members adopted the mantra “lower for longer.”

They’re making plans for next year’s drilling budgets and expect commodity prices to be lower for longer time periods, she said.

The Journal Record reports that West Texas Intermediate fluctuated between $45.77 and $50.17 per barrel in the last month and hasn’t risen to $55 per barrel in the last year. Karges said some expect crude prices to slump below $40 per barrel.

“With extra product on the market keeping prices depressed and OPEC uncertainty contributes to that,” Karges said, referring to the 14-member oil cartel. “Some are not planning on $50 or even $60 oil.”

However, companies drilling some wells with horizontal wellbores longer than 1 mile in Oklahoma’s STACK basin have hit break-even prices with oil at $41 per barrel. Those with lateral wellbores less than a mile can break even at about $55 per barrel.

“Longer laterals can access more resources with less capital-intensive costs,” Karges said.

Drillers can also save money by putting more than one well on a single well pad.

Williams said all oil and gas producers learned how to cut costs, with some becoming more efficient than others. The rig count for Oklahoma’s Cana Woodford Shale, which includes parts of the STACK, has risen 75 percent since December. The rig count is up 86 percent in South Texas’ Eagle Ford Shale, 64 percent in North Dakota’s Bakken Shale, and 18 percent in Colorado’s Niobrara Shale since the end of last year.

Natural gas pipeline constraints in the Permian Basin slow down growth in West Texas, Williams said.

He said he doesn’t expect increased spending from drillers in the next year and some will pull back. That’s in part because commodity strip prices have remained relatively flat.

Devon Energy Corp. trimmed $100 million from its expected budget for 2017, due in part to supply chain savings. The company’s CEO announced in the first quarter it contracted directly with a mine for sand used in hydraulic fracturing jobs after wells are drilled. That has saved 15 percent on frack jobs so far.

Workers are also pursuing designs in which multiple horizontal wellbores are drilled into different rock layers, emanating from a single vertical wellbore. That will help reduce the time it takes to drill a well, saving money.

Chesapeake Energy Corp. plans to reduce the number of rigs it has drilling in northern Oklahoma, in part because workers haven’t yet seen the production results they expected. However, they’ll add one rig in Colorado, where some wells are outperforming initial expectations.

CEO Doug Lawler told analysts in early August that the company will shift rigs from one play to another based on where they get the best returns and where the market conditions are the best.

Karges said as her members get ready to make their 2018 budgets, they’re continuing to closely listen to the discussion around gross production taxes. A special legislative session looms, as a lawsuit overturned a cigarette fee estimated to bring $200 million, leaving another revenue shortfall in the state budget. Drillers closely examine where they spend money based on which plays have the best returns. Commodity prices, contractor prices and state and local taxes all affect rates of return.

“They don’t always know what the production will be in those areas (around the country),” Karges said. “All those factors together help them determine where they’ll have the best well economics. That’s where they invest.”

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Information from: The Journal Record, https://www.journalrecord.com

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