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Will this Oklahoma Oil Play Continue to STACK Up Monster Results for Drillers in the Second Quarter?

While the STACK play of Oklahoma doesn't get as much press as other shale plays like Texas' legendary Permian Basin, drillers are finding it to be exceptionally profitable at lower oil prices. Because of that, many of the producers focused on the STACK, and the adjacent SCOOP play, have delivered excellent results in recent quarters even though oil prices remain weak. Given that history, the odds are pretty good that Oklahoma-focused producers Devon Energy (NYSE: DVN), Newfield Exploration (NYSE: NFX), and Marathon Oil (NYSE: MRO) will report solid results when they unveil second-quarter earnings Tuesday night.

Don't be surprised by another guidance-beating quarter

Devon Energy gave investors a hint of what's to come this quarter when it publicized a monster new STACK well a few weeks ago. The company said that its Privott 17-H well achieved a facility-constrained peak 24-hour rate of 6,000 barrels of oil equivalent, which was the "highest initial production rate of any well by a wide margin." That well was just one of several prolific ones it brought online during the quarter in the region, thanks in part to its recently enhanced well completion design.

Image source: Getty Images.

Those well results suggest that the company's production is likely to once again come in above the high end of its guidance range, which for oil is 230,000 to 240,000 barrels per day. That forecast, however, represents a decrease from the 261,000 barrels a day it produced last quarter due to some planned maintenance on its Jackfish oil sands facility in Canada, which the company anticipated would cause lease operating expenses to rise in the second quarter. Based on that guidance, and lower oil prices during the quarter, analysts expect Devon to earn $0.32 per share, which would be down from the $0.41 per share it earned in Q1. That said, the company handily beat the top-end of its production guidance in Q1 thanks to strong well results, which drove earnings past expectations. With the robust output from its newest STACK wells already announced, history appears poised to repeat itself.

Don't be surprised by another beat

Newfield Exploration has also drilled some monster STACK wells this year, including its Burgess well, which delivered a record oil rate for a well of its size. These highly productive wells enabled the company to produce 139,000 BOE/d in the U.S. last quarter, which was 6,000 BOE/d ahead of the mid-point of its guidance range. That robust production enabled the company to earn $0.57 per share, which trounced the consensus estimate by $0.13 per share.

Newfield Exploration's forecast was for second-quarter domestic production between 134,100 BOE/d to 140,100 BOE/d, a range that reflected the expected timing of well competitions. Given the potential for lower production, when combined with weaker oil prices during the quarter, analysts only anticipated the company would earn $0.42 per share. However, the recent success of Newfield's new upsized well completions makes it more likely that the company will beat expectations again when it reports Tuesday evening.

Image source: Getty Images.

Look for the ramping STACK to stand out despite the noise

Marathon Oil has already had a busy quarter. In early June, it closed the sale of its Canadian subsidiary to Royal Dutch Shell (NYSE: RDS-A)(NYSE: RDS-B) and Canadian Natural Resources (NYSE: CNQ) for $1.75 billion in cash. It immediately put that money to work, concurrently announcing a $1.1 billion deal for land in the Permian Basin and following that up with another $700 million deal for more land in the Basin. Further, Marathon expects to receive an additional $750 million from Canadian Natural Resources in the first quarter of next year. 

That said, while the Permian Basin gives Marathon Oil another growth driver going forward, one of its most important positions in the near-term is in Oklahoma. That's evident by the fact that the company's production from the play is up 60% over the past year, and it's ramping up drilling activities this year, with plans to increase its rig count from seven to 10. While those additional drilling rigs will help boost production from the play later this year, in the second quarter, it's all about well completions. The current expectation is that it will complete 18 to 22 wells -- up from 12 last quarter -- and that these could be prolific since the company already detailed that the first two wells brought online early in the quarter were exceptional.

However, given the transitional nature of this quarter, as well as lower oil prices, analysts expect that Marathon Oil's loss will widen from $0.07 per share last quarter to $0.14 in the second quarter. That said, if the rest of its STACK wells performed as well as the initial ones, it's possible that the company could beat expectations when it reports results on Wednesday after markets close.

The little engine that could is starting to accelerate

Oklahoma's shale plays have become an important growth driver for the oil industry over the past year. That importance should shine through in the second quarter when drillers with significant positions in the region report results that appear poised to beat expectations given the strength of recently completed wells. At some point, the improving results of the area should cause the market to recognize that these drillers are sitting on a gold mine, which could help reverse the nearly 30% slide they've taken this year.

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Matt DiLallo has no position in any stocks mentioned. The Motley Fool owns shares of Devon Energy. The Motley Fool has a disclosure policy.