A discovery in the South Central Oklahoma Oil Province (SCOOP) could signal a new era of oil production for the state, according to a Wood Mackenzie report.

The discovery could open unexpected doors to divestitures as it becomes more fully developed.

Continental Resources Inc. (NYSE: CLR) unveiled in late September its latest discovery of 11 wells producing from the Springer Shale in the SCOOP. The wells have a type curve around 940,000 barrels of oil equivalent (boe), with 67% oil, 17% NGL and 16% gas.

Continental drilled its discovery well in the Springer about 2 years ago and spoke confidently about the play’s potential at its analyst day, said Tudor, Pickering, Holt & Co. in a report.

As companies continue to gain traction and experience using new unconventional technologies to rekindle the region’s once-prolific fields, Wood Mackenzie estimated that within five years oil production from the Springer Shale could be between 40,000 bbl/d and 60,000 bbl/d.

“We think the Springer Shale is the beginning of a trend in the southern Anadarko Basin that we’re going to see more and more of,” said Brandon Mikael, Lower 48 upstream analyst at the firm.

In addition to Continental, several other companies have been active in the play including Newfield Exploration Co. (NYSE: NFX), Marathon Oil Corp. (NYSE: MRO), Apache Corp. (NYSE: APA) and EOG Resources Inc. (NYSE: EOG).

Springer’s potential could change dynamics elsewhere, as companies look to leave underperforming plays for Oklahoma. The Bakken/Three Forks assets owned by Newfield are the most likely divestiture candidates down the road for potential buyers, Tudor, Pickering, Holt said. The assets are not currently for sale.

“Depending on delineation success and subsequent inventory expansion in the Anadarko, we feel paring down certain parts of the portfolio makes sense to ensure sufficient liquidity is in place to ramp development,” the firm said. “Weaker crude prices may provide the catalyst necessary for hybrids like NFX to exit the basin and sell out to more focused operators looking to bulk/core-up their position.”

While the discovery will not boost Oklahoma past Texas to become the most productive state in the country, it will shift it into an area of growth from its decline in production during the past 10 to 20 years, Mikael said.

“We could see Oklahoma oil production doubling from where it is today by 2020 and then get into all-time highs right about the beginning of the next decade, which would be right around the 100-year anniversary of when Oklahoma led the nation,” he said.

From a development standpoint, however, there is a lot of technical risk associated with the Springer Shale, he said. Besides the long history of development in the area, the reservoir is overpressured and the geology is faulted and highly variable.

“The cost environment is definitely something we’re keeping an eye on,” he said.

Continental has reported exceptional economics in the Springer Shale so far. The company said it had a completed well cost of $9.7 million with a rate of return of 100% based on prices of $100/bbl of oil and $4 per thousand cubic feet of gas.

The company’s delineation and density testing in the shale is underway. It has three rigs currently drilling delineation and five rigs on infill pilot. The first extended lateral is anticipated to be drilled in fourth-quarter 2014. Continental said it is already realizing drilling efficiency gains. It has seen a 36% decrease of days during spud to rig-release for year-to-date 2014 compared to 2012.

Newfield has participated in six Continental-operated wells so far and plans to participate in 16 of 23 upcoming Continental wells. Newfield’s first operated well, a 5,000 foot lateral, averaged 1.5 Mboe/d (82% oil) during its first 10 days.

“The good news for NFX is that the Springer can benefit from the extensive infrastructure build-out underway to support their SCOOP development. Further, a higher oil cut will put less strain on gas processing capacity, a key regional hurdle,” Tudor, Pickering, Holt said.

The mix of unconventional technologies and the hybrid characteristics of the formation make the Springer a great example of what will become more common in the next wave of unconventional development—a period Wood Mackenzie has named Unconventional 3.0, Mikael said.

“We think there’s a great quantity of these fields out there,” he said. “Each one of them individually doesn’t sum up to a Bakken or Eagle Ford, but the sum of them all together—if oil prices are high enough—creates a lot of upside and big inventory of opportunities left here in the Lower 48.”

Looking out over the next 12 to 24 months, Wood Mackenzie has identified four key signposts that will be indicative of the Springer Shale’s potential:

  • Well repeatability—The 11 wells for which Continental released IP data are highly concentrated in a handful of sections, yet are coming online at widely variable rates. The ability to keep laterals within the target zone and take advantage of natural fracture patterns will be the key to mastering the variable geology.
  • Production decline rates (particularly oil)—Initial type curves for the Springer Shale indicate shallow decline rates relative to other shale and tight oil plays. Closely monitoring production data will be necessary to confirm both the bullish 940 Mboe EUR and 100%+ internal rate of return that Continental claims.
  • Fracture communication in density pilots—Some early Springer wells have been drilled and completed in sections with producing Woodford horizontals. Any prolonged production declines in those wells would reduce the ability to increase well inventory vertically through the stratigraphic column, removing a key value driver of Midcontinent leasehold.
  • Midstream infrastructure—Initial data suggest that the oil-weighted Springer type curve will not cause gas-processing constraints, particularly when considering Enable Midstream Partners LP’s (NYSE: ENBL) and ONEOK Partners LP’s (NYSE: OKS) recently announced expansions. The expected crude and condensate production gives more upside to the potential wave of oil heading for Cushing from the Anadarko Basin. Flow to Cushing could potentially lead to temporary price blowouts, similar to what has been seen lately in the Permian.
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