Matt Insley

Some people can hardly spell it. Others can’t point it out on a map. And many just simply haven’t heard of it…

But the Chinese and other foreign interests are snatching up as much oil-rich acreage as they can get, in this hotbed for shale production.

Welcome to the next round of America’s profitable shale plays! Strap on your boots, we’re headed to the Mississippi Lime formation…in Oklahoma.

Since the mid-80’s, old man nature and his wicked decline curve looked to be caning the production out of OK’s oil patch. As of January 2010 the state was producing a mere 160,000 barrels of oil per day (bpd) – down from 1984 high of nearly 500,000.

Today, as of the latest production numbers from the U.S. EIA, the state has more than doubled production from its 2010 low – current output sits at 272,000bpd.

Following the same path as the Bakken or the Eagle Ford, OK’s production numbers could signal a budding boom – and the wildcat profits to follow. “Oklahoma” as Reuters points out “could be on course to see the next big increase in oil and condensates production, following North Dakota and Texas.”

At this point there’s one thing you have to remember: even though all shale plays are drastically different – the Monterey in Cali isn’t the Marcellus in PA, etc – the common thread amongst them all is their life cycle.

As Hart Energy’s Richard Mason first brought to our attention last year, the life cycle for all major shale plays follows the same path: discovery….optimization….harvest.

In Oklahoma, the energy patch has a wide breadth – what with harvested stripper well oil production, optimized natural gas production and budding action from the Woodford shale. But the most exciting play for today’s action is found in the Mississippi Lime.

This formation is still in the “discovery” stage and striving for keys to optimization. And you can rest assure as those efficiencies and optimization techniques take hold a few key players will be set to cash in. But as we can tell from the oil production stats coming out of the state – some OK players are indeed moving the needle.

Here’s a look at the play I’m most excited about, the Mississippi Lime formation:

041113_drh

The Mississippi Lime Formation.
There’s a lot of action happening in the west but a few standout “oily”
wells east of the Nemaha Ridge have shown VERY promising results.

The Mississippi Lime represented in the map above is still in the midst of the discovery/delineation phase. But initial results from some of the better producing well are highly enticing.

“The Mississippi Lime play has grown from its roots in north-central Oklahoma into south-central Kansas and beyond” Hart Energy reports. “Activity is surging, with some 70 rigs at work drilling horizontal wells and hundreds of drilling permits on file. Sterling well results—some completions are in excess of 1,000 barrels of oil equivalent per day—are increasing the buzz.”

At 1,000bpd, even compared to higher rates from Bakken or Eagle Ford wells (those can be well over 2,000bpd), the numbers are fantastic. And when you add in low-cost estimates on some of these wells – you’ll see that the payout could be just as good, if not better.

In fact according to a report from Credit Suisse the horizontal Mississippi Lime play has a higher rate of return than the Eagle Ford and ALL other oil shale plays.

The true key to this play will be some of the oil-rich sweetspots.
“In general” Hart’s Richard Mason says, “the Mississippi Lime is oilier to the east of the Nemaha Ridge, especially as the play moves south into Oklahoma, but tends to be gassier west of the Nemaha Ridge.”

Indeed, as more drill bits turn in this up-and-coming play, keep an eye on those oil production numbers.

Besides production, there’s plenty more to the story, too…

For starters, Oklahoma has a vast amount of oil and gas infrastructure that could mean increased and faster payout for shale operators.

“Learning from past mistakes” Platts reports, “Mississippian Lime midstream developers are jumping ahead of the next wave of low cost crude production and planning ways to move the oil to the US Gulf or Midcontinent for refining.”

So while operators are still trying to figure out how to optimize the play – midstream options are already becoming available. That’s a lot more than can be said about other up and coming shale plays. It all comes back to location location location – and OK is as good as it gets for a budding shale play.

Another way you can tell we’re headed in the right direction is through the money flow.

As I hinted at the beginning of this article Chinese and other foreign interests are starting to pad the way for more “subsidized” drilling. China’s Sinopec recently inked a billion dollar deal with Chesapeake Energy – that’s in addition to Sinopec’s $2.2B deal with Devon in 2012. Sandridge Energy also recently signed a couple deals with Repsol and South Korea, which will also add to the subsidized drilling budget.

Indeed, when it comes to U.S. shale plays, foreign interests have been lining up for years:

041113_drh2

As you can see, some of the most recent shale plays have enjoyed a massive influx of foreign funding. Notably for today’s discussion the pink “other” is where you’ll see the tally for some of the most recent Mississippi Lime joint ventures.

“There is no doubt joint ventures are playing a major role in efforts to develop the Mississippi Lime” Mason says. Indeed, if you’re following the money trail, the future looks good for this Oklahoma formation.

Although this play doesn’t have the wow factor (see: million barrels per day) of the Bakken or Eagle Ford it could still lead to a ramp up to as many as 500,000 barrels per day. That alone would more than double Oklahoma’s current oil production – and lead to some fantastic growth opportunities.

Some of the big names in this play include: Apache, Chesapeake, SandRidge, EOG, Devon, Range — SandRidge being the largest acreage holder.

I’ll still wait for the production numbers to shake out to see who the winners in heat will be – but for now I wanted to make sure you were acquainted with this brand new shale hotspot.

Keep your boots muddy,

Matt Insley

Original article posted on Daily Resource Hunter

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Matt Insley is the managing editor of The Daily Resource Hunter and now the co-editor of Real Wealth Trader and Outstanding Investments. Matt is the Agora Financial in-house specialist on commodities and natural resources. He holds a degree from the University of Maryland with a double major in Business and Environmental Economics. Although always familiar with the financial markets, his main area of expertise stems from his background in the Agricultural and Natural Resources (AGNR) department. Over the past years he's stayed well ahead of the curve with forward thinking ideas in both resource stocks and hard commodities. Insley's commentary has been featured by MarketWatch.