The SCOOP/STACK continues to gain producer interest. In December, Gulfport announced entry into the SCOOP, acquiring 46,400 net surface acres from Vitruvian. This marks a second nearly pure play Northeast producer diversifying away from Appalachia, after Range Resources purchased Memorial Resource Development in the Cotton Valley. While the implications behind this diversification is a subject unto itself, in light of Gulfport’s acquisition, today we will focus on the growth outlook for the SCOOP/STACK, and the effects around natural gas takeaway for the region.
In our Upstream Outlook, BTU Analytics forecasts production in the SCOOP/STACK will increase by an average 1.9 Bcf/d by 2020, which will offset declines in other regions of Oklahoma, as seen in the figure below. Concurrently, drilling activity is anticipated to continue to pick up in the SCOOP/STACK, with the average number of horizontal wells drilled nearly doubling from 2016 levels.
Where will this increase in natural gas production go? A portion of production from Oklahoma has traditionally made its way north in conjunction with Rockies and Texas gas to serve the Midwest market, flowing on interstate pipes NNG, ANR, NGPL and PEPL, as seen in the figure below. However, the dynamics of the U.S. natural gas market are changing, with 4.7 Bcf/d of new pipeline capacity from Rover and Nexus projects out of the Northeast set to deliver bottlenecked gas from the Marcellus and Utica to Midwest market over the next few years; Rover has 1.25 Bcf/d subscribed to deliver directly to PEPL and ANR. Direct competition with Northeast production makes increased gas flowing from the SCOOP/STACK via this route less attractive long-term. This leaves another likely route for increased production from the SCOOP/STACK to be towards the Southeast and Gulf Coast via Gulf Crossing, MEP and NGPL pipelines, where there is set to be incremental demand in the form of LNG and Mexican exports and power burn.
Given this logical outlet for increased production, there have been a few pipeline projects announced that propose to further increase the capacity to ship gas from the growing SCOOP/STACK south, as summarized in the figure below
Both the Sooner Trails and MIDSHIP projects have gone so far as to submit pre-filings with FERC. In their monthly pre-filing status update, however, NextEra has indicated they continue to examine the needs of their customers, which may modify the scope of the Sooner Trails project. Enable has also proposed several options, with the latest discussed at the DUG Midcontinent Conference in October 2016 proposing new lines to Bennington, OK and Tolar, TX. They have indicated in their third quarter earnings that they “feel that [they] really need to get activity moving on take away capacity.”
Ultimately, increased natural gas production from the SCOOP/STACK will have to compete with Permian and Northeast production, making the most likely outlet from the region via the Southeast. Midstream companies have been working to develop projects to facilitate increased flow this direction, which if any come to fruition, will help prevent residue capacity from becoming a constraint. For more analysis on the SCOOP/STACK, check out the Upstream Outlook and E&P Positioning Report, as well as our 2017 What Lies Ahead Conference in February.