With breakeven points averaging around $35 a barrel and initial production rates that parallel the vaunted Permian and Eagle Ford basins, the SCOOP/STACK shale basins in Oklahoma are arguably the hottest oil plays in the U.S. today.
High IP rates, minimal water production and low breakeven prices explain why big energy is rightfully giving the SCOOP/STACK formations so much attention. Majors are investing heavily in the liquid-rich areas and one particular junior has quietly built itself a formidable position that should reap strong returns for decades to follow.
Nearly always referred to in the shortened versions, SCOOP and STACK are acronyms for the oil-prone “South Central Oklahoma Oil Province” and “Sooner Trend Anadarko Canadian Kingfisher” areas. In 2016, Capital One Southcoast estimated the value of the SCOOP/STACK plays to be $40 billion with upside.
Gold royalty and stream giant Franco-Nevada (NYSE:FNV) has agreed to shell out over half a billion dollars to get into the SCOOP/STACK mix as it looks to increase its exposure to oil and gas for growth. Earlier this month, the Toronto-based company partnered with Continental Resources (NYSE:CLR), one of the biggest operators in the region, committing an initial $220 million investment and another $100 million annually to buy additional mineral rights in the region over the next three years.
Exxon (NYSE:XOM), the world’s biggest public energy company, also wants a piece of the pie, with its XTO Energy unit recently deciding to start drilling in the Osage formation in the STACK.
Alta Mesa (NASDAQ:AMR) is also targeting the Osage, one of five primary formations in the STACK basin (along with Meramec, Oswego, Chester and Woodford). Alta Mesa has taken an aggressive stance in the STACK, adding 20,000 acres to its portfolio last year.
Linn Energy (OTCQB:LNGG), which disappointed on Q2 earnings earlier this month (costing them about $1.5 billion in market cap) and spun out the newly formed Riviera Resources Inc. (OTCQX: RVRA), recently commissioned the Chisholm Trail III cryogenic gas plant through its Blue Mountain Midstream subsidiary.
Located in the heart of the SCOOP-STACK plays, the plant is expected to reach full capacity of 250 MMcfd by the end of the year in response to ever-rising throughput in the area. Blue Mountain is also evaluating investing in the addition of a second 250 MMcfd plant to its Chisholm Trail system to keep up with demand.
While all these companies carry market capitalizations into the billions of dollars, an overlooked player in the space is Jericho Oil Corp. (TSX-Venture:JCO) (OTCPK:JROOF), a company that has methodically amassed 16,000 net acres in the northern STACK via a joint venture and an enviable portfolio of approximately 55,000 gross acres across central Oklahoma.
To keep capex down, Jericho has taken the approach of partnering, when local companies with expertise in the STACK can advance projects quickly and efficiently. Not including recently drilled wells, production from Jericho STACK wells stood in excess of 200 barrels of oil equivalent per day (BOEPD), a figure that just got a shot in the arm with new drilling. A well drilled in the Meramec formation in March has initial 24 production (IP24) of a stunning 957 BOEPD.
A second new well, this one in the Osage formation (and only a couple miles away from where Exxon is drilling) in July produced 504 BOEPD (IP24), with production trending higher at last report by Jericho. The Osage is a prime target for Jericho and others in part because slow and steady increases in flow means that the wells are expected to produce consistently for longer periods of time than some other formations.
Armed with the information on Osage and the success of the first well, a second is scheduled to be spud by the end of August.
To the east, Jericho’s 50/50 JV is producing 275 BOEPD from what is dubbed the "Osage Extension," which includes the famous Woodford formation.
Furthermore, Jericho is producing another 400 BOEPD from its SURE (Seminole Uplift Resource Extension) wells situated southeast of its STACK assets. This region, which doesn’t get the acclaim of ones like the Permian, has produced a whopping 773 billion barrels of oil historically and is still churning today.
All told, Jericho is producing 800 BOEPD from its assets and with the new wells, that figure should easily climb to over 2,000 BOEPD and multiply quickly with every new penetration.
Even with oil prices coming down from a multi-year high around $75 a barrel to about $65 per barrel currently, the company can produce from Oklahoma at strong margins, making this company with a stock price at 50 cents and a paltry $64 million market capitalization one that should be on every investor’s radar now and for years to come.
