OKLAHOMA CITY—Competition is having a tremendous effect on shaping the new environment among Oklahoma’s Scoop and Stack plays. From the buying process for mineral owners to backing from financial institutions, many players in the area are witnessing a shift in normality, according to a roundtable panel at Hart Energy’s recently held DUG Midcontinent conference and exhibition.

One of the sources for the uptick in competition is due to the wave of interest in areas surrounding the very popular, but locked up core Scoop/Stack, according to RS Energy Group’s senior research associate, Shak Ahmed.

“Back in 2016, the history of the play really quickly got locked up by a handful of large multibasin operators and the core parts of the play were very quickly understood [as to] what was good and what wasn’t necessarily as good,” Ahmed said. “So as those opportunities started to get locked up, we saw a big shift into some of the emerging areas of the play like into the northwest extension, up on the Anadarko Shelf and the Merge.”

For RS Energy Group’s clients, Ahmed said there was a real interest in understanding how those non-core Scoop/Stack areas differed geologically and economically, and how that all translated into productivity. As a result, he said a lot of those investors struggled for a couple of years against those who were booming within the core Scoop/Stack.

As for minerals, competition has had a hand in igniting the market over the last few years and essentially driving prices. Will Cullen, vice president of business development at LongPoint Minerals LLC, said he has believes two factors have aided to an increase in prices.

“First, as the play itself gets more developed there is more of a visibility in terms of what operators are doing and there is more certainty around being able to predict where operators are going to go and what well results are going to be,” Cullen said. “That inherently will increase prices as it just makes the acreage more valuable.

“I think the second part is certainly competition. I think there are really two things that we see in terms of competition really driving up prices…first [there] is just a lot of institutional money and more players in the field [that] are certainly pushing up prices.”

In agreement was Blake Harris, COO at Case Energy Partners LLC/CEP Minerals LLC, who backed Cullen’s claim that money—both from institutional backing and outside investors—has made the water “very muddy.”

“It certainly is competitive… super competitive. There is a lot of money coming into the space and a lot of money that isn’t necessarily industry money and it has raised the prices,” Harris said.

“Mineral owners—some of them—are more likely to sell, I think, because right now is a unique time with how aggressive the offer prices are. We’re also seeing something I think is important [that] is the closing time-frames that these mineral owners are now demanding. Some mineral owners want to close in two weeks, three weeks or just one. There are a lot of groups out there that have decided that they want to buy minerals now and are looking for every way that they can to stay competitive and that’s not always just pricing but the closing time frames…it makes it tough,” he added.

Cullen expanded on Harris’ sentiment regarding mineral owners, adding that he has seen the buying and selling of interests impact prices to further drive competition. “If you’re buying directly from the mineral owner, you’ve seen a price increase for sure over the last couple years. But, if you’re buying from brokers or middle men then you’ve seen that price go up exponentially and that market in itself has just exploded. We’ve seen a tremendous amount of new interests coming in the brokerage space.”

Cullen said he has found the risk and reward change for mineral buyers pursuing land in the Midcontinent. As a mineral owner, he said, there is just an upfront cost of buying minerals without the concern of ongoing capex or opex costs or continued capital for development.

“So from a mineral buyer perspective, you’re not really too focused on well costs or how many wells they’re going to put in a certain section or drill up. As a mineral owner you just want as many of the hydrocarbons extracted out of the ground as quick as possible,” he said.

“For mineral owners, since we don’t control the drill schedule, as much information as we can gleam from operators to figure out how they are going to develop the play and when the timing of that is going to be, that is extremely impactful to the price that we can offer these mineral owners,” he added.

With more knowledge from operators, he said that helps with better predictability and more certainty regarding the development of acreage.

Going forward, Cullen said the real challenge is predicting what the future will look like in the mineral space in regards to making offers today.

“I think that as that picture continues to change, it just makes that much more challenging. But, as we go along and that becomes more certain and we start to see things repeat more and more, that’ll give us the certainty we need to be a lot more consistent and accurate in the offers we need to make.

“The competition and the continuing change in environment from operators are probably our two biggest challenges.”

As for the future of the Midcontinent—in regards to the competitiveness between mineral buyers and the new players backed by massive capital—consolidation seems to be imminent. There is a belief that there will be a new wave of Midcontinent players exiting, going public or merging with bigger mineral buyers. For panelists Harris and Cullen, either way, it would have to come soon.

“I think we’ve seen a lot of teams out there that were deployed with $100 million or $200 million in capital from private equity or other financial backers and those financial institutions are going to want to see returns. My thought is that those financial backers that have put their money into those funds are probably looking for something much greater than that, so they’re looking for a sale or some sort of exit,” Cullen said.

“I think those players in the $100 to $200 [million] space are too small to go public, but I think there is an opportunity for a great consolidation. We haven’t seen that emerge just yet, but I think all of that is coming pretty soon from those financial backers.”

For the companies that go public, Harris said, “there is going to be a beast that will continually need to be fed and there is only finite amount of assets out there that they can be fed with so it’s going to have a profound effect on the marketplace.”

“It’ll be extremely interesting to see how it plays out,” he added.

Mary Holcomb can be reached at mholcomb@hartenergy.com.

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