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Scoop-Stack Playbook 2017

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US Horizontal Drilling 2015 H SCOOP/STACK: PRODUCTION FORECAST 38 | September 2017 | In the Scoop 5% to 10% of the wells drilled this year will test secondary targets. In its first-quarter reporting, Cimarex Energy Co. said 30% of the $306 million invested in explora- tion and development for the first three months of 2017—of which $197 million comprised drilling and completion activities—had gone into its Midconti- nent acreage. Production from the area averaged 484 MMcfe per day, down slightly from first-quarter 2016, while crude oil volumes were up 20%. According to Imre Kugler, senior consultant in energy research at IHS Markit, the potential impact production from these plays could have on individ- ual companies is one of the things that makes the story of the Scoop and Stack so interesting. "Neither of these plays is huge, especially in comparison to the Permian," he said. "The best part may be half a million acres in each of the plays." In comparison, the Permian Basin is five times as large. "These plays are going to be pretty important for the portfolios of companies like Newfield, Continental, Devon and Marathon," Kugler said. "Companies that didn't get into the Permian in the beginning of the growth phase have an opportunity to capitalize on the Anadarko Basin. The Scoop and Stack are a growth engine for these companies." Interest in the play Ben Chu, manager of equity projects at Genscape Inc., pointed to the complexity of these plays—and the potential that presents—as their biggest draw. "The area was geologically 'wrinkled up,' so to speak, and pushed into a big fold, creating a whole host of plays embedded in one," he explained. "In the last year or so, other layers of rock, such as the Missis- sippian layer (which is oilier than the gassy Woodford) and the Silurian and Springer layers, have helped these plays along in terms of generating additional interest." The fact that multiple, distinct strata are drillable from the same surface acreage is clearly a draw, said Dan Debelius, an industry analyst with Freedonia Group Inc. "Plays in the Stack such as the Meramec have high levels of oil. They are overpressured and traditionally have exhibited high initial production rates. These characteristics, coupled with their low water content, make them high producers." This acreage is desirable right now because it is potentially quite lucrative, Debelius said. "The com- panies that are active in this region could make lots of money for long periods of time." Fellow analyst Jason Carnovale agreed. "Opera- tors in the Scoop and Stack have made public state- ments that these areas are more economical with lower oil prices than just about anywhere else in the U.S. right now," he said. Granite Wash MS Lime Fayetteville Arkoma Woodford Scoop p $46.77 -($1.24) +23% $61.87 $4.13 +3% e $57.64 $3.28 +8% Arkoma W $4.66 (-6%) Fayetteville $3.58 (-2%) Oil Breakeven Oil Breakeven Gas Breakeven IRR% Stack $34.74 -($3.87) +61% Bubble size = peak boe H o o H H o Ho Ho D 2 D First Production Q2 '16 Q3 '16 Q4 '16 Q1 '17 The breakeven costs for the Midcontinent show the region is profitable even at a low oil price. (Data courtesy of Genscape Inc.) Midcontinent Oil and Gas Breakeven in $/bbl & $/Mcf Wellhead and IRR$

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