Don't Overlook This Emerging Oklahoma Oil Play

Photo credit: Devon Energy. 

When we think about America's energy boom, North Dakota's Bakken or the Eagle Ford Shale of Texas are the first to come to mind While there is no doubt that those two oil-rich areas are driving much of the boom, new plays seem to be emerging all the time. One of the latest is Oklahoma's Cana Woodford Shale.

The liquids-rich play has caught the eye of Newfield Exploration (NYSE: NFX  ) and Devon Energy (NYSE: DVN  ) in particular. Both see it fueling production growth for years to come.

Newfield Exploration has used the play to fuel much of its recent production growth. This year, the company expects its production from the play to have grown by 170% over last year. While it has acreage in both the Bakken and Eagle Ford, it has turned its attention to the Cana Woodford. Wells here are fairly expensive to drill at more than $10 million apiece, but because of the amount of oil, gas, and liquids it expects to produce from each well, the returns are pretty solid. In fact, Newfield Exploration expects to earn a rate of return north of 50% on each well it drills.

Devon Energy also sees the Cana Woodford fueling future returns. The company has about a quarter million net acres, with most of those being in the liquids-rich portion of the play. About 40% of the production is oil and natural gas liquids, which, while not as oily as the Bakken, is still pretty solid.

Devon was able to grow its liquids production out of the play by 48% over last year and sees a large runway of future growth opportunities. In fact, after drilling 150 wells this year, Devon sees the potential for 3,000 more.

Another company that sees a big future out of this Oklahoma oil play is Continental Resources (NYSE: CLR  ) . The top developer of the Bakken is earmarking about a quarter of its 2014 capital budget to the state. That will enable Continental to grow its rig count by 80% year over year. Given how important the Bakken has been to Continental's past, this says a lot about where it sees its future.

Continental Resources has enjoyed a pretty impressive 435% jump in its production since the second quarter of last year. While that was off a very low base, it does show how fast the company has scaled up its production. Further, the development of Continental's position in Oklahoma is a critical component of its goal to triple its production by 2017.

Oklahoma's Cana Woodford Shale really looks promising. It's not as oily as the Bakken -- instead, its claim to fame will be the amount of liquids each well will produce during its lifetime. Those should enable producers like Devon, Newfield, and Continental to earn a very solid return over the long term.

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