STACK/MERGE/SCOOP - Jefferies Group - ST… · The SCOOP is located towards the very south of the Anadarko Basin The SCOOP has recently seen high momentum and is the top liquids-producing

Jefferies LLC November 2016 /

STACK/MERGE/SCOOP

1


Comparison of Selected Plays’ Core and Tier I PV-10 Breakeven Prices

PV-10 Breakeven Price – Key U.S. Oil Plays

Tier I Acreage

Core Acreage

# HZ Targets

12+

16+

4-7

2-3

4

3

Spot $47.08

3 Year Strip $52.83

Note: Source: EIA, Wall Street Research, Company filings, investor presentations and Jefferies estimates. Assumes crude oil to natural gas price ratio of 15:1. NYMEX pricing as of November 28, 2016.

$20.00

$25.00

$30.00

$30.00

$40.00

$40.00

$35.00

$45.00

$48.00

$52.50

$60.00

$60.00

Midland Basin

Delaware Basin

SCOOP / STACK

Eagle Ford

DJ Basin

Bakken

2


Permian and SCOOP / STACK Have Had a Robust Recovery

Key Points

Recent rig activity has lagged the recovery and stabilization of oil prices

─ Total US onshore rig count is up 47% to 593 from its bottom of 404 in May 2016

Resurgence in rig activity is primarily attributable to Permian and Mid-Con plays

─ 228 rigs currently operating in the Permian Basin

─ 77 rigs currently operating in the SCOOP / STACK

US Onshore Rig Count vs. NYMEX Spot Price

Source: Baker Hughes Rig Count as of November 23, 2016.

LTM Rig Count by Basin

$-

$20

$40

$60

$80

$100

$120

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16

US Onshore Rig Count NYMEX Spot Price

$-

$10

$20

$30

$40

$50

$60

0

100

200

300

400

500

600

700

800

Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16

Other Eagle Ford Haynesville Marcellus

Utica Williston Granite Wash DJ-Niobrara

Barnett Permian SCOOP / STACK NYMEX Spot Price

3


Wells by formation and spud Year

2013 2014

2016 2015

4


Key Points

Continental is by far the most active driller pushing the play to the West with 14 active rigs

Most STACK operators have concentrated their Meramec drilling in the Volatile Oil Core near the Kingfisher/Blaine county border

Newfield is delineating the Meramec in central Kingfisher county and has just dropped back down to 5 rigs after ramping up to 7 rigs last year

Marathon and Cimarex continue testing the Meramec as part of their ongoing drilling activities

Active Rigs Currently in the STACK

Operator Name Total Operator Name Total

Continental 14 Comanche 2

Devon 8 Gastar 2

Newfield 5 Vitruvian 2

Oklahoma Energy 4 Ward 2

BP 3 Carrera 1

Cimarex 3 Chesapeake 1

Citizen 3 Council Oak 1

Marathon 3 Hinkle 1

Tapstone 3 LINN 1

Blaine, Kingfisher and Canadian Counties

5


STACK Stratigraphic Column and Type Log

Key Points

Meramec

Silty, shale reservoir sourced from the Woodford

Highly varying areal distribution

Found at depths of 6,000 – 12,000 ft

Normal to slightly overpressured

Gross Meramec thickness of ~150 – 500 ft

Average porosity around 5%

Average water saturation of 40% - entirely bound water

Chester shale is regional seal

OOIP estimates range from 13 to 30 MMBO/sec

Woodford

Siliceous, source rock

Organic rich

Natural and induced fractures

Hunton and Osage horizontal plays are emerging

KINGFISHER

CANADIAN

KINGFISHER

CANADIAN

6


STACK Activity Map

Continental Andersons Half Flowing back

8

Cimarex Peterson 1H-2821X IP24: 3,318 Boe/d

57% Oil

6

Continental Boden 1-15-10XH

IP24: 3,508 28% Oil

9

Continental Foree 1-18-7XH

IP30: 2,061 Boe/d 69% Oil

11

Continental Frankie Jo 1-25-24XH

IP24: 2,627 Boe/d 56% Oil

12 Continental

Ludwig 1-22-15XH IP30: 1,570 Boe/d

13

Carrera Energy Robinson-Payday 16-1H

IP30: 354 Boe/d

4

Carrera Energy Heath 3-1H

Frac’d 08-21-2016 Waiting on Results

1

Cimarex Peoples 1-29H

IP30: 827 Boe/d

5

Continental Compton 1-2-35XH IP30: 2,200 Boe/d

70% Oil

10

Continental Madeline 1-9-4XH IP24: 3,538 Boe/d

71% Oil

14 Continental

Wintersole 1-33-28XH Spud 06-04-2016 Non-Op: 11.3% WI

16 Continental

Yocum Current: 1,621 Boe/d

17

Devon Blue Ox 3130-4AH IP24: 4,000 Boe/d

70% Oil

19

Devon Marmot 19/18 1XH IP24: 3,400 Boe/d

70% Oil

20

Devon Pump House 7

IP15: 2,200 Boe/d 1 mile laterals

21

Continental Quintle 1R-10-3XH IP24: 2,192 Boe/d

74% Oil

15

Council Oak Haigler 1-4H

Spud 08-29-2016 Non-Op 1.7% WI

18

Newfield Brown Farm 1H-8

Frac’d 06-11-2016 Waiting on Results

23

Newfield Scheffler 1H-9X

IP30: 1,681 Boe/d

24

Carrera Energy Big Hunk 7-1H

2

Carrera Energy Mounds 16-1H

3

Comanche Ward 21-1H

7

Devon Virginia Lee 10-19N-16W

22

Oklahoma Energy Brown 1706 6-27MH

25

Tapstone Energy Howard 5-19-17 1H

27

PayRock Energy Eve 1506 1-20MH

26

2

1

3

4

5 6

8

9

10

11 12

13 14

7

15 16

17

18

20

21

22

23

24 25

26

19

27

7


STACK Meramec

Andersons Half 1-30-19XH Yocum 1-35-26XH

Skipper 1510 3XH

Pony Express 27 1H Peoples 1-29H Frankie Jo 1-25-24XH

Big Hunk 7-1H

Brown Farm 1H-8 Heath 3-1H

Ward 21-1H

Campbell 1H-12

Haigler 1-4H

Wintersole 1-33-28XH

Madeline 1-9-4XH

Verona 1-23-14XH Foree 1-18-7XH

Virginia Lee 10-19N-1H

Key Points

Mississippian Meramec depocenter indicated by thickest Meramecian section (400+ ft)

─ Mix of siliciclastic and carbonate prone shales. Average porosity ~7%. Silica content increases to the South

─ At least two distinct flow units (Upper and Lower Meramec)

─ Codevelopment possible when gross Meramec >300 ft

─ Meramec thins abruptly and gives way to hundreds of feet of Osage carbonates

─ Osage capped with a thin Meramecian shale known as the St. Genevieve

STACK overpressure (0.6+ psi/ft) driven by hydrocarbon generation facilitates word class rates

Volatile Oil to Black Oil roughly coincides with the Overpressure/ Normal pressure boundary

Operators are still finding excellent returns outside of overpressure, owing to liquids and low D&C

8


Osagean Isopach

Key Points

Meramec and Osage total thickness in the NW Stack ranges from 925-1,500’, approximately twice as thick as it is in the STACK

Osage is generally comprised of tripolitic chert, dense chert, and limestone

Osage is a fracture porosity play

Still early innings with mixed results

Key is to understand why and where Osage works

Faulting is critical for creating secondary porosity, enhancing permeability, and opening hydrocarbon migration pathways

Fractures can yield very high rates and recoveries

9


Key Points

Two discrete landing zones in the Upper and Lower Woodford, separated by a ductile, TOC-rich middle

Primary landing zone is the >50’ thick Upper Woodford

Upper Woodford thins significantly to the North

Overall clay content appears to increase north of Cana

Key questions are: how much does the middle Woodford contribute, and what thickness of the Brittle Upper Woodford is necessary for a successful well

A’

Kinderhook

Upper Woodford

Middle Woodford

Lower Woodford Basal Woodford

Hunton

A’

A

A

A’

A

City of Watonga

Woodford Thins to the North

10


Selected STACK Type Curve Summary Assumes NYMEX strip pricing as of November 11, 2016

Development Assumptions Unit Woodford Osage MeramecType Curve Name NA Woodford Dry Vol Oil East Vol Oil West Lean Gas Wet Gas Mosage Thin Black Oil Core Black Oil Thin Vol Oil Light Oil Up Dip Oil

EUR, Crude Oil MBbls - 329 171 70 99 127 237 757 313 353 251

EUR, Natural Gas MMcf 9,968 898 2,135 4,320 3,496 2,170 1,043 1,875 1,733 2,799 967

EUR, Wellhead MBoe 1,661 479 527 790 682 489 411 1,069 602 819 412

EUR, Crude Oil MBbls - 329 171 70 99 127 237 757 313 353 251

EUR, Residue Gas MMcf 9,669 673 1,601 3,240 2,622 1,627 782 1,406 1,300 2,253 778

EUR, NGLs MBbls 150 117 278 562 455 282 136 244 225 263 91

EUR, Processed MBoe 1,761 558 716 1,171 991 680 503 1,235 755 991 471

Differential & Processing Assumptions

Differential, Crude Oil: 2017 $ / Bbl (3.00)$ (2.35)$ (2.35)$ (2.35)$ (2.35)$ (2.35)$ (2.35)$ (2.35)$ (2.35)$ (2.35)$ (2.35)$

Differential, Natural Gas: 2017 $ / Mcf -$ (1.25)$ (1.25)$ (1.25)$ (1.25)$ (1.25)$ (1.25)$ (1.25)$ (1.25)$ (1.25)$ (1.25)$

Differential, Natural Gas: 2017 % 90.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Differential, NGL % 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0%

Shrink Factor % 97.0% 75.0% 75.0% 75.0% 75.0% 75.0% 75.0% 75.0% 75.0% 80.5% 80.5%

NGL Yield Bbls / MMcf 15.0 130.0 130.0 130.0 130.0 130.0 130.0 130.0 130.0 94.0 94.0

Operating Assumptions

Fixed Opex / Well Month 1 $ / Well / M 7,500$ 14,500$ 14,500$ 14,500$ 14,500$ 14,500$ 14,500$ 14,500$ 14,500$ 14,500$ 14,500$

Fixed Opex / Well Month 7+ $ / Well / M 7,500$ 7,500$ 7,500$ 7,500$ 7,500$ 7,500$ 7,500$ 7,500$ 7,500$ 7,500$ 7,500$

Variable Opex, Crude Oil $ / Bbl 3.00$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$

Variable Opex, Natural Gas $ / Mcf 0.80$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$

Variable Opex, Water $ / Bbl -$ 1.50$ 1.50$ 1.50$ 1.50$ 1.50$ 1.50$ 1.50$ 1.50$ 1.50$ 1.50$

D&C Capex 2017 $M 6,500$ 3,000$ 4,500$ 4,500$ 4,500$ 3,700$ 4,000$ 3,700$ 4,000$ 3,700$ 3,000$

Lateral Length Feet 7,500' 5,000' 5,000' 5,000' 5,000' 5,000' 5,000' 5,000' 5,000' 5,000' 5,000'

Single Well: IRR % 62.5% 64.4% 30.7% 47.5% 49.1% 20.0% 33.7% 239.6% 44.1% 94.8% 85.9%

11


The SCOOP has High Momentum and Impactful Results in the Woodford Shale Based on 24-hour IP Rate

Key Points

The SCOOP is located towards the very south of the Anadarko Basin

The SCOOP has recently seen high momentum and is the top liquids-producing area in the Woodford Shale

Operators are continuing to delineate the play extent, and are testing spacing and the potential for stacked laterals in the SCOOP

Beckham 1-27H 856 Boe/d IP30

21% oil

Boles 1H-14X

1,466 Boe/d IP30 57% oil

Carson 1-2H

1,524 Boe/d IP24 57% liquids

Hunter 1H-13X

1,420 Boe/d IP24 65% oil

Jo Ann 1H-18

1,231 Boe/d IP24 11% oil

Mashburn 1H-33 1,444 Boe/d IP24

33% oil

Riddle 14-32H 825 Boe/d IP30

28% oil

Singer 1-18-7XH 1,688 Boe/d IP30

33% oil

Vesta Marie 1-29H 1,530 Boe/d IP24

61% liquids

Wilson 1H-3

1,168 Boe/d IP24 22% oil

Campbell 1-36XH 1,063 Boe/d IP30

56% oil

Tina 1H-26X

1,855 Boe/d IP24 47% oil

Healey 1-12H

670 Boe/d IP24 86% liquids

Mills 1-21H


Simms 1-32H


Sparks 1-27H

775 Boe/d IP24 71% oil

Arrington 1-23H

1,040 Boe/d IP24 32% oil

Dawkins 1-20H 808 Boe/d IP24

58% liquids

Dicksion 1-21H

1,590 Boe/d IP24 45% oil

Poteet 1-17H


Branch Pad

1H-16: 1,245 Boe/d IP30

2H-16X: 1,510 Boe/d IP30

3H-16X: 1,579 Boe/d IP30

4H-16X: 1,557 Boe/d IP30

5H-16X: 1,610 Boe/d IP30

6H-16X: 1,577 Boe/d IP30

Casados 1H-21X

1,795 Boe/d IP30 19% oil

Vanarkel 1-15H

2,045 Boe/d IP24 44% oil

Sublette 1H-22

1,052 Boe/d IP24 56% oil

Chalfant 1-7H

2,700 Boe/d IP24 16.2 MMcfe/d IP24

13% Oil

Gregory 1H-28 1,688 Boe/d IP24

35% oil

Hansell

973 Boe/d IP24 90% oil

Floyd 1H-3X

1,466 Boe/d IP30 57% oil

Claudine 1-29-32XH 3,017 Boe/d IP24

18.1 MMcfe/d IP24 8% oil

Auld 1-10H


12


Stratigraphic Column and Type Log

SCOOP Stratigraphic Column and Type Log

Key Points

World-class source rock

─ Oil-Prone Type II Kerogen

Found at depths of 8,000 – 16,000 ft. and overpressured (0.6 – 0.7 psi/ft.)

Vitrinite Reflectance 0.6 – 1.2%

Gross thickness of Woodford SCOOP ~ 150 – 420 ft.

Porosity ranges from 5 to 10%

Resource base estimated at 150 to 200 BCF/section

Recent economic success from horizontal drilling in the Springer Shale substantially increased the potential for the SCOOP to be a stacked play

CANEY

GODDARD M-1

HUNTON

SYCAMORE

WOODFORD

GODDARD M-2

GODDARD M-3

CANEY

GODDARD M-1

HUNTON

SYCAMORE

WOODFORD

GODDARD M-2

GODDARD M-3

13


Springer M1

Springer M2

Springer M3

Woodford Sycamore

Caney

Hunton

Key Points

Operators have primarily targeted the M1 Springer in the South and the M2 in the North

CLR has been active in the M1 Springer, while Vitruvian has been active in the M2 Springer

Phase windows are separated by a north south fault

─ Condensate to the West

─ Oil to the East

Springer Gas Condensate Wellhead EUR of 15.4 Bcfe

Springer Cross Section

A A’

A

A’

Lyle Land 1-25H IP30: 1,090 Bbls/d

Langworthy 1-33H IP30: 976 Bbls/d

Prince 1-17X8H IP30: 699 Bbls/d

Jared 1H-9H IP30: 1,587 Bbls/d

14


SCOOP Woodford

Key Points

Recent completion enhancements in the SCOOP have delivered some of the best shale gas results in the L48.

─ Operators have adopted high rate slickwater completions to enhance fracture complexity

─ Continental has tested spacing at 6, 8 and 10 wells/section

─ Vitruvian’s recent Anita Fowler, tested at 18.6 MMcf/d and 380 bbl/d

─ Citizen’s Governor James well delivered an IP-30 of 2,074 BOE/d (70% oil), extending the productive Woodford trend to the North

Continental Density Trials Anita Fowler Governor James

15


SCOOP Sycamore

Key Points

Sycamore is basinal equivalent of Osage

Porosity development more similar to that of a basinal shale

Sycamore development is in it’s early stages, with Citizen leading the charge

Ryan Express

16


Selected SCOOP Type Curve Summary Assumes NYMEX strip pricing as of November 16, 2016

Development Assumptions Unit South Woodford Sycamore SpringerType Curve Name NA Lean Gas N Wet Gas North Cond. South Cond. S Wet Gas Volatile Oil Wet Gas Gas Cond. Oil

EUR, Crude Oil MBbls 72 345 681 382 94 544 181 170 906

EUR, Natural Gas MMcf 25,299 17,581 11,175 11,752 14,366 2,016 5,017 14,344 1,942

EUR, Wellhead MBoe 4,289 3,275 2,544 2,341 2,488 880 1,017 2,561 1,230

EUR, Crude Oil MBbls 72 345 681 382 94 544 181 170 906

EUR, Residue Gas MMcf 22,769 15,823 10,058 10,577 12,929 1,815 4,515 13,627 1,845

EUR, NGLs MBbls 885 879 894 999 718 71 176 502 68

EUR, Processed MBoe 4,753 3,861 3,251 3,144 2,967 917 1,109 2,944 1,282

Differential & Processing Assumptions

Differential, Crude Oil: 2017 $ / Bbl (5.00)$ (5.00)$ (5.00)$ (5.00)$ (5.00)$ (5.00)$ (5.00)$ (5.00)$ (5.00)$

Differential, Natural Gas: 2017 $ / Mcf -$ -$ -$ -$ -$ -$ -$ -$ -$

Differential, Natural Gas: 2017 % 90.0% 90.0% 90.0% 90.0% 90.0% 90.0% 90.0% 90.0% 90.0%

Differential, NGL % 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0%

Shrink Factor % 90.0% 90.0% 90.0% 90.0% 90.0% 90.0% 90.0% 95.0% 95.0%

NGL Yield Bbls / MMcf 35.0 50.0 80.0 85.0 50.0 35.0 35.0 35.0 35.0

Operating Assumptions

Fixed Opex / Well Month 1 $ / Well / M 7,500$ 7,500$ 7,500$ 7,500$ 7,500$ 7,500$ 7,500$ 7,500$ 7,500$

Fixed Opex / Well Month 7+ $ / Well / M 7,500$ 7,500$ 7,500$ 7,500$ 7,500$ 7,500$ 7,500$ 7,500$ 7,500$

Variable Opex, Crude Oil $ / Bbl 3.00$ 3.00$ 3.00$ 3.00$ 3.00$ 3.00$ 3.00$ 3.00$ 3.00$

Variable Opex, Natural Gas $ / Mcf 0.50$ 0.50$ 0.50$ 0.50$ 0.50$ 0.50$ 0.50$ 0.50$ 0.50$

Variable Opex, Water $ / Bbl -$ -$ -$ -$ -$ -$ -$ -$ -$

D&C Capex 2017 $M 9,500$ 9,500$ 9,500$ 9,500$ 9,500$ 6,500$ 6,500$ 10,000$ 10,000$

Lateral Length Feet 7,500' 7,500' 7,500' 7,500' 7,500' 7,500' 7,500' 7,500' 7,500'

Single Well: IRR % 110.0% 69.5% 70.8% 65.4% 47.5% 41.7% 17.8% 43.4% 31.5%

17


Merge Geologic Overview

Key Points

The Woodford is the primary Source rock engine that drives the entire Hydrocarbon system of the Anadarko Basin

The Woodford is prospective across the Merge, though slightly higher in VClay and thinner than in the SCOOP

─ The Woodford in the Merge has been largely ignored and has not seen the benefit of modern completions

The Sycamore is the basinal equivalent of the Osage/Meramec System in the STACK

─ Mississippian system grades from carbonate in the north to a more siliceous shale in the south

─ Sycamore rock properties on par or even better than core Meramec

─ In general, the Mississippian section of the Merge has higher Porosity than the STACK

Note: From Jones IR Presentation Materials.

Caney/Meramec

Stratigraphic Column Type Log

Sycamore/Osage

Woodford

Osagian Isopach

Hunton

Type Log

18


Recent Results in the Merge Play

Devon Wildcard 2215-1H IP-30: 757 boe/d

75% oil

Meramec Wells

Woodford Wells

Sycamore Wells

Cimarex Straka 1H-36X

IP-30: 888 boe/d 55% oil

Citizen Rosemary 1H-1-36 IP-30: 1,599 boe/d

70% oil

Citizen Rosemary 2H-1-36 IP-30: 1,316 boe/d

75% oil

Newfield Peters 1H - 15X IP-30: 918 boe/d

80% oil

Marathon Meyer 1106 1-21W H

IP-30: 670 boe/d 35% oil

Citizen Gov. James 1H - 32 IP-30: 2,074 boe/d

70% oil

Newfield Carole 1H-21X

IP-30: 535 boe/d 80% oil

1

2

3

4

5

6

7

8

1

5

2 6

7 3 4

8

Sycamore / Woodford / Meramec Formations

19


Merge Type Curve Areas

Key Points

Jefferies Type Curve Areas were built starting with Vitrinite Reflectance data from the Woodford and then trued up to well head GOR data

Legacy vertical well data was incorporated along with newer vintage wells; however, the data were not sufficient to warrant subdividing TC areas more granular than a Western area that is more gas prone and an Eastern are that is more Oil prone

The Sycamore is largely a migrated system

─ Given the proximity of the Sycamore to the underlying Woodford Source Rock, they are likely to have nearly identical hydrocarbon phases

Gas Prone

Oil Prone

Area

Type Curve Unit Oil Gas Oil Gas

Lateral (Feet) 7,500' 7,500' 7,500' 7,500'

IP (Bbl/d, Mcf/d) 355 1,350 1,040 2,400

EUR (MBbl, MMcf) 634 1,605 602 2,528

Di (%) 40 54 75 58

Df (%) 6 6 6 6

IRR (%) 60 60 140 140

b - 1.0 1.0 1.0 1.0

Woodford Sycamore

20


Summary

Key Points

STACK continues to march towards the West. Likely to continue sing big STACK gas wells

Further testing of the STACK Woodford with high proppant completion designs should yield material re-rating of play

Encouraging results from the thin Meramec in NW STACK. Still very early in the NW STACK Osage. 3D Seismic could be a game changer

Merge is the next hot area with favorable rock qualities, high EUR’s and low D&C make for IRR’s >100%

Operators have been focused their SCOOP drilling Woodford to hold all rights

Encouraging SCOOP Sycamore results could add a third bench to the SCOOP

21

Documents

STACK/MERGE/SCOOP - Jefferies Group - ST… · The SCOOP is located towards the very south of the Anadarko Basin The SCOOP has recently seen high momentum and is the top liquids-producing