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Oklahoma oil production could surpass California, Alaska

by Adam Wilmoth and Paul Monies Modified: August 12, 2014 at 4:34 pm •  Published: August 12, 2014
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Our NewsOK Energy team chatted with readers Tuesday about fracking.

You can join our energy Q&A’s on the second Tuesday of every month at 10 a.m. and submit your questions about energy companies and developments across the state. Below is an unedited transcript of Tuesday's chat.

NewsOK 9:34 a.m. Good morning. Our NewsOK Energy team will be logging on at 10 a.m., but you can start submitting your questions now.
Jay Marks 9:56 a.m. We're still about 5 minutes from getting underway, but we've already got a few questions in the queue. Keep them coming.
Jay Marks 9:59 a.m. And be heartened, all with utility questions, the inestimable Paul Monies is on is way to join us.
Jay Marks 10:01 a.m. I've got 10 a.m., so here is our first question:
Richie 10:01 a.m. It's my understanding that the Corporation Commission doesn't get involved in royalty or lease issues. Is there a public agency that does, or must one hire a lawyer to deal with such issues?
Jay Marks 10:01 a.m. I believe that is a legal matter that would have to be resolved by hiring an attorney.
Jay Marks 10:02 a.m. In Pennsylvania, the attorney general reportedly is investigating royalty complaints from a large number of people who had signed leases with Chesapeake.
Jay Marks 10:04 a.m. Many of them have complained that Chesapeake has been cheating them out of the royalties owed to them, but it remains to be seen what the government will do on their behalf.
Jay Marks 10:04 a.m. Chesapeake is facing similar lawsuits in many states where they are active.
Adam Wilmoth 10:05 a.m. You might also contact the National Association of Royalty Owners or the Coalition of Oklahoma Surface and Minerals Owners.
Driller 10:05 a.m. There was a story in the Wall Street Journal this week that noted that North Dakota had passes Alaska in oil production. Where does Oklahoma rank?
Adam Wilmoth 10:07 a.m. According to the latest numbers from the U.S. Energy Information Administration, Oklahoma ranks No. 5 in oil production behind Texas, North Dakota, Alaska and California.
Adam Wilmoth 10:08 a.m. Alaska has been trending steadily downward while North Dakota has increased exponentially over the past few years.
10:09 a.m.
Adam found this graphic from EIA that illustrates the drastic change in fortunes for producers in Alaska (orange line) and North Dakota (blue line) over the past years.
Jay Marks 10:10 a.m. Continental Resources CEO Harold Hamm told me in June that he expects Oklahoma to surpass California and Alaska in the next few years, based on the strength of its production gains.
Jay Marks 10:11 a.m. Here is the story from June 6: http://newsok.com/article/4...
Adam Wilmoth 10:14 a.m. The next chart shows the top five oil producing states. Texas, North Dakota and Oklahoma are increasing while Alaska and California are trending downward.
10:14 a.m.
Zane 10:14 a.m. Where are the most active drilling sites in Oklahoma in terms of counties? I know the SCOOP and the Mississipian are busy, but I wonder which particular areas have the most drilling.
Jay Marks 10:15 a.m. I wrote about that topic last month after a similar question in our last chat.
Jay Marks 10:16 a.m. It turns out nearly 20 percent of the 2,600 oil and natural gas wells drilled in Oklahoma last year were in two counties: Alfalfa and Woods in Northwest Oklahoma.
Jay Marks 10:17 a.m. Drillers completed more than 100 wells in 10 different counties, mostly in the western half of the state.
Jay Marks 10:18 a.m. The story from June 23 also included a couple of maps showing where wells were drilled in 2013: http://newsok.com/article/4...
Guest 10:18 a.m. Does Mexico opening up their energy resources to foreign investment mean anything for OKC based companies?
Jay Marks 10:18 a.m. (Paul's back now, so we're all set for some questions about utilities or renewables)
Adam Wilmoth 10:19 a.m. It could. Devon, Chesapeake and several other Oklahoma companies are active in the Eagle Ford in south Texas. The play is believed to extend into Mexico. Those companies might be interested in looking further south.
Adam Wilmoth 10:20 a.m. Mexico also could open up a portion of the Gulf of Mexico that is believed to hold large oil and natural gas reserves.
Jay Marks 10:20 a.m. The biggest bounty from this move by Mexico is expected to be offshore, which is the bailiwick of the industry's bigger players. I don't expect any Oklahoma City companies to be part of that push.
Jay Marks 10:21 a.m. It will be interesting to see how Mexico's changes appeal to the industry, which is getting more averse to operating in countries where there are social or security concerns.
Jay Marks 10:22 a.m. The area that could include a continuation of south Texas' oil-rich Eagle Ford Shale is beset by violence tied to drug cartels. That could scare off oil companies, no matter what resources are available there. Safety (and security) likely will be their primary concerns.
Stefan 10:22 a.m. Any comment about the fracking forum in Norman last night?
Adam Wilmoth 10:27 a.m. The event focused on whether Norman and other chartered cities can ban fracking. It was a good discussion, but the question was left open. New York attorney David Slottje said cities have the right. He helped cities in New York lead such a ban. Terry Stowers of the Coalition of Oklahoma Surface and Mineral Owners said state law does not allow cities to have such a ban. Assistant city attorney Leah Messner said the question is unclear and likely would lead to a lawsuit.
Adam Wilmoth 10:28 a.m. There was no indication that the city council is considering such an action. The meeting was not led by the city. But it was an interesting discussion.
Robert 10:28 a.m. OG&E just announced a 15-20 percent rate increase. OG&E fought the EPA's rules through the courts, so is there anything else the company can do? Is it fair to spend so much money on the Mustang plant only to retire it?
Paul Monies 10:29 a.m. To clarify, OG&E is not retiring the Mustang plant. They want to replace four 1950s-era steam units with new combustion turbine units. That will cost about $413 million
Paul Monies 10:30 a.m. OG&E expects to spend $1.1 billion total on their plan. Most of that is to respond to Regional Haze rules and Mercury and Air Toxics Standards rules.
Paul Monies 10:31 a.m. The utility just filed an application with regulators last week, so we're still in the early stages of the process. But you're right, if the increases are granted by the Oklahoma Corporation Commission, it could mean higher bills each month from 2015 to 2019. In short, each year, you can expect your bill to go up by about 3 percent.
Paul Monies 10:33 a.m. OG&E's plan calls for putting expensive scrubbers on its coal units at the Sooner plant near Red Rock. It also wants to convert two of its three coal units in Muskogee to use natural gas.
Robert 10:33 a.m. My apologies. But couldn't they continue to use the steam units with an upgrade and have more diversity of their fuel supply
Paul Monies 10:35 a.m. The steam units at Mustang already use natural gas. But they are at the end of their useful life, according to OG&E. They take 10 hours to start up, and are inefficient to use at peak times. The new combustion turbines OG&E wants to put in at Mustang can start in 10 minutes, giving them more flexibility to ramp up and down to chase the intermittent nature of wind generation in the region.
Robert 10:36 a.m. Is there any middle ground for PSO and OG&E that doesn't involve large rate increases for consumers?
Paul Monies 10:40 a.m. That's a good question. These environmental rules call for much stricter emissions standards, but they have been in the works for a long time. OG&E and PSO have taken different approaches, but they had a different fuel mix to start with. PSO's Northeastern Station was its only coal plant in Oklahoma. Its strategy seems to more geared toward buying electricity from independent power producers. PSO is also part of a much larger company, American Electric Power, so its cost of capital are a little different than OG&E, which operates only in Oklahoma and a sliver of Arkansas.
Jay Marks 10:40 a.m. On the other side of this issue, many environmental and health advocates will tell you that the cleaner air that follows these changes will leave you and your families with fewer health problems.
Frank 10:40 a.m. Do you have any new information on Tapstone Energy?
Adam Wilmoth 10:41 a.m. Not at this time.
Jay Marks 10:41 a.m. Tom Ward seems to be following the lead of his former partner at Chesapeake, Aubrey McClendon. Neither one is talking much about their business.
Guest 10:41 a.m. After Texas, what state is home to the most oil and gas companies?
Jay Marks 10:41 a.m. That's a tough question to answer...
Jay Marks 10:42 a.m. Oklahoma's got a pretty good claim due to the number of E&P companies in Oklahoma City and midstream and service companies in Tulsa.
Adam Wilmoth 10:42 a.m. All the oil and natural gas producing states are home to hundreds of small energy companies and service companies that support them.
Jay Marks 10:42 a.m. But there are countless small companies here and in other states that are part of this industry too.
Barbara 10:43 a.m. What is the outlook for older oil fields in SE Oklahoma to benefit from newer technologies? For example, Fitts Field in Pontatoc County, or similar.
Jay Marks 10:43 a.m. I have no doubt that technology can be applied anywhere in the country, as long as the returns are right.
Jay Marks 10:44 a.m. SE Oklahoma seems to be home to more natural gas than oil, so it's not getting the industry's attention at this point, but that doesn't mean companies cannot apply the latest advances to boost production there.
Adam Wilmoth 10:46 a.m. Technology has revived the industry and many of the country's oldest oilfields. The industry has been able to go back into many areas that had seen drilling slow down or go away. I'm not sure specifically about Pontatoc County. But companies are looking to go anywhere they can drill profitably.
mary 10:46 a.m. Can the deep oil be tied up forever with a 50 to 60 years old leases that are being held by a surface water flood well. This makes horizontal drilling impossible.
Adam Wilmoth 10:48 a.m. My understanding is that a lease can be held indefinitely as long as it is producing. I don't know that a water injection well would count, but usually those are connected with producing wells.
Adam Wilmoth 10:49 a.m. The Corporation Commission is looking at rules that would determine how leases with old, traditional, vertical wells would be affected by new horizontal wells.
Adam Wilmoth 10:50 a.m. It is a complicated issue.
Bobby B 10:50 a.m. What is Devon's future plans in their Miss/Woodford play in Central Oklahoma?
Jay Marks 10:52 a.m. That is one of the two areas Devon identifies as a development play, along with its holdings in Wyoming's Powder River Basin. As such, it likely will have a hard time competing for capital with Devon's core assets, particularly the oil-rich Eagle Ford Shale and Permian Basin in Texas and its growing operations in Canada's oil sands.
Jay Marks 10:52 a.m. Devon officials didn't spend much time on that area in last week's earnings call, but the company has been very active in northern Oklahoma, where it is able to drill into several different zones in search of oil and other liquids.
Guest 10:54 a.m. I read about Harold Hamm's divorce proceedings being largely closed to the media. Is it fair to do this given that the outcome could affect the stock of a publicly traded company?
Jay Marks 10:54 a.m. That is the reason the judge decided to close part of the proceedings.
Jay Marks 10:54 a.m. The divorce case involves the valuation of Hamm's stake in Continental Resources, which is based on the company's oil reserves.
Jay Marks 10:55 a.m. The company contends those numbers are proprietary and wants to keep them from getting out to competitors.
Adam Wilmoth 10:55 a.m. The case is not closed to the public, but many of the proceedings are. The outcome will be public record, but much of the discussion now is focused on Continental's reserves and future value. The judge determined that information is proprietary.
Jay Marks 10:57 a.m. It could be perceived as unfair to the company's shareholders if sensitive information that could damage the value of Continental's stock came out in the divorce trial, so the judge opted to close some parts of it at the urging of the company's attorneys.
Brock 10:58 a.m. Are there estimates/depletion tables for oil and gas reserves in the Mississippi Lime play? If so, what's a safe guess for continued activity?
Jay Marks 10:59 a.m. That question is a bit beyond my expertise as a journalist, but SandRidge Energy remains confident enough in its operations there that it hasn't moved into any other areas.
Jay Marks 11:00 a.m. I believe SD execs have talked about decades of future drilling opportunities in the Mid-Continent, which includes a number of stacked zones around the Mississippian, although no one has repeated former CEO Tom Ward's claim that it could rival the Bakken.
Jay Marks 11:00 a.m. ... and now we're out of questions and done for this month.
Jay Marks 11:01 a.m. Thanks for joining us. We'll be back here again on Sept. 9 at 10 a.m.
by Adam Wilmoth
Energy Editor
Adam Wilmoth returned to The Oklahoman as energy editor in 2012 after working for four years in public relations. He previously spent seven years as a business reporter at The Oklahoman, including five years covering the state's energy sector....
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by Paul Monies
Energy Reporter
Paul Monies is an energy reporter for The Oklahoman. He has worked at newspapers in Texas and Missouri and most recently was a data journalist for USA Today in the Washington D.C. area. Monies also spent nine years as a business reporter and...
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