One of the major improvements that we have initiated recently is the process of integrating actual Oklahoma well cost data disclosed by AFE into NASWellCube. Once this work has been finalized, well cost data for Oklahoma will be consistent with disclosed numbers and bring a significant improvement in data accuracy to our well cost data in general. By analysing actual drilling and completion (D&C) costs for wells completed in SCOOP/STACK since 2014, there are some interesting trends that can be seen.
Average drilling and completion costs per well reached a low point in third quarter 2016 and have since increased gradually by 13% in SCOOP and 25% in STACK for wells completed during third quarter 2017 (Figure 1).
Higher completion costs have been the main driver of the increase as drilling costs have held relatively stable. Stable drilling costs have resulted from favorable contracts from 2016 and early 2017 accounting for a significant market share in 2017. Additionally, the percentage of completion costs in the overall D&C costs (excluding facility costs) has grown to around 55% in SCOOP and 60% in STACK as of 2017. Completion costs for some of the most intensive completions account for up to 75-80% of the total well cost.
Longer laterals combined with higher proppant and frac fluid loading are the main factors contributing to the rise in D&C costs. If we consider costs per perforated lateral foot, the cost increases are only around 10% in SCOOP and 13% in STACK (Figure 2). The cost per perforated lateral foot is slightly higher in SCOOP. One explanation for this is that the majority of wells in SCOOP target the deeper Woodford formation. In STACK, the most targeted zone is a shallower Mississippian-age Meramec formation. Additionally, the most efficient completion configurations seen in the recent low oil price environment transitioned faster to the full-scale development in STACK.
Figure 3 plots many of the recent completions since 2014 on a map with each bubble being proportional to the actual cost per perforated lateral foot. This map does not only illustrate that the recent activity is largely concentrated in Kingfisher, Blaine, Canadian, Stephens, Grady and Garvin, but also replicates the findings from previous charts in a different angle. Firstly, the actual costs per perforated lateral foot (indicated by bubble size) are mostly higher in the southern SCOOP counties, which is in line with Figure 2. Secondly, completion costs constitute a larger share of the total D&C expenses. Thirdly, the variation in terms of cost per lateral foot is relatively small in the STACK counties as the most efficient completion configuration seems to be widely adapted. This is particularly true in the Kingfisher County. Finally, there is a clear preference for the deeper Woodford and Hunton despite the average D&C costs being higher when targeting deeper formations. These two formations combined account for around 53% of the recently approved permits.
As discussed in the section above, recent wells in SCOOP/STACK show a tendency to have more intense proppant loading per foot, but the question is whether this more costly completion configuration has yielded greater volumes.
Since 2013, more efficient completion designs and core area development in Kingfisher and Blaine County have largely resulted in improved initial 12-month production profiles. Figure 4 depicts the average 12-month production curves split by start-up year for core plays in SCOOP/STACK. The recent configurations boost the peak production significantly in all key plays in the region. In SCOOP, where operators have been testing completion configurations, 2016 start-ups have about the same peak production, but now decline at slightly lower rates after six months compared to the ones started in 2015.
In STACK, there have been considerable and consistent improvements throughout 2013 to 2016. Although peak production marked a new high in 2016, wells turned in line that year tend to converge towards the average performance of a typical 2015 start-up after 12 months.
SCOOP and STACK have attracted attention among shale operators due to the high IP rates and competitive breakeven prices seen in these plays. More than 110 permits have been issued every month since November 2017 affirming high industry confidence in the continued economic viability in the region.