All drill, no frack: U.S. shale leaves thousands of wells unfinished

[IsailedawayfromFR]

U.S. shale producers are drilling at the highest rate in 18 months but have left a record number of wells unfinished in the largest oilfield in the country – a sign that output may not rise as swiftly as drilling activity would indicate.

Rising U.S. shale output has rattled OPEC's most influential exporter Saudi Arabia and pushed oil prices to a near four-month low on Wednesday. U.S. production gains are frustrating Saudi-led attempts by the world's top oil exporters to cut supply, drain record-high inventories and lift prices.

Investors watch data on the number of rigs deployed in North American oil and gas fields as a leading indicator for output. But the rising rig count and frenetic drilling activity in the Permian Basin in West Texas is not all about pumping oil.

During the 2014-2016 downturn in global oil prices, the number of wells left incomplete grew as companies shut down rigs, laid off workers and retreated from the fields. When prices picked up, operators were expected to pump the oil from those incomplete wells before spending money on drilling new ones.

Instead, the number of incomplete wells has risen. A record 1,764 wells were left unfinished in the Permian in February, according to U.S. government data going back to December 2013. In February alone, 395 wells were drilled and only 300 completed. That was the highest drilling rate in the Permian in two years.

The surprise surge in unfinished wells indicates that investors, traders and oil market players may need to reinterpret rig count data.

"You would now be looking at the number of wells drilled and the uncompleted wells and not necessarily the rig count," said Bruce Bullock, director of the Maguire Energy Institute at Southern Methodist University in Dallas.

Reuters interviews with more than a dozen well completion service providers, oil and gas lawyers and industry experts show that some operators are drilling because their leases require them to do so within a specified time limit to keep their leases. But they may not be required to actually pump the oil immediately after they have drilled the hole.
http://www.reuters.com/article/us-usa-shale-insight-idUSKBN16V0IL

from article, the amount of production in just the Permian is 300,000 bopd from uncompleted wells.

[Elderberry]

And I'll bet they're only drilling one or two wells per pad. They are locking in on drilling leases.

[Bigun]

No mystery in that as current prices will determine when and if those wells get completed.

[Smokin Joe]

I think you will find that many of the leases the DUC wells remain on are already held by a producing well on the lease. Drilling operations, now that the slump has been felt, should be cheaper, and it is a good time to capitalize on that. With prices down and a glut on the market waiting for more favorable market conditions to complete wells that do not have to be completed may well be a good idea, too. Run the liner, and cap it until the market recovers, or the other wells on the pad deplete enough that the new production won't require any more major surface infrastructure to handle.

[Bigun]

I think you will find that many of the leases the DUC wells remain on are already held by a producing well on the lease. Drilling operations, now that the slump has been felt, should be cheaper, and it is a good time to capitalize on that. With prices down and a glut on the market waiting for more favorable market conditions to complete wells that do not have to be completed may well be a good idea, too. Run the liner, and cap it until the market recovers, or the other wells on the pad deplete enough that the new production won't require any more major surface infrastructure to handle.

 

[IsailedawayfromFR]

I think you will find that many of the leases the DUC wells remain on are already held by a producing well on the lease. Drilling operations, now that the slump has been felt, should be cheaper, and it is a good time to capitalize on that. With prices down and a glut on the market waiting for more favorable market conditions to complete wells that do not have to be completed may well be a good idea, too. Run the liner, and cap it until the market recovers, or the other wells on the pad deplete enough that the new production won't require any more major surface infrastructure to handle.

That works if one has the money to withstand the next few years of low oil prices like an Exxon.

Most companies do not, especially after a drought during the past two years, and even some active operators are having to pull back and read the tea leaves of where the money is coming from in the near term.

At some stage, strategic concerns become overwhelmed with tactical concerns.

[Smokin Joe]

That works if one has the money to withstand the next few years of low oil prices like an Exxon.

Most companies do not, especially after a drought during the past two years, and even some active operators are having to pull back and read the tea leaves of where the money is coming from in the near term.

At some stage, strategic concerns become overwhelmed with tactical concerns.

Yep. Of Whiting, Oasis, Hess, Burlington, Statoil, XTO(XOM), Continental Resources, Conoco/Phillips, Marathon, some have more leeway.

If you are a small outfit you have to maintain cash flow, which limits the number of DUC wells you can have before you are forced to bring wells on line. Larger players with deeper pockets have the option of waiting on market conditions simply because they can make the investment and wait to recoup it when the markets are more favorable.