HOUSTON – In the past two years, souped-up rigs have spun wells into U.S. soil faster than ever, but limited water supplies and other looming challenges threaten to constrain future drilling investments, industry observers said Wednesday.
Oil producers may pull back on their rapid drilling as they run into problems like “interference” between wells, where two or more crisscrossing horizontal well bores soak up the same crude and quickly deflate their production rates, said Michael Tribolet, a Houston-based exploration and production loan underwriter at Wells Fargo.
“Because of all these horizontal well bores going every which way, occasionally they’ll find they have very good initial production, but only for a short period of time because another well is interfering with it,” Tribolet said Thursday during the sixth annual S&P Capital IQ Energy Symposium in downtown Houston. “It’s a wild card: It depends on the producers and the fields, but I would throw that out there.”
U.S. oil output is projected to reach its highest point in American history in 2016, at 9.5 million barrels per day.
Marc Bromberg, associate director at Standard & Poor’s Rating Services, said U.S. exploration and production spending will likely increase about 5 percent over last year, under pressure from increased rig efficiency that have made it possible to drill many more wells in a year. For example, advanced rigs in the Fayetteville Shale in Arkansas have cut down drilling time on wells from 22 days to 7 days.
But the biggest threat to drilling investments is that landlocked U.S. crude may swell to unsustainable levels on the Gulf Coast, potentially crushing U.S. crude prices as the nation’s most productive refining region runs out of buyers, said John Kingston, director of news at Platts.
For years, crude supplies had ballooned at an oil hub near Cushing, Okla., but new pipelines like the southern leg of Keystone XL have begun to alleviate the strain and send oil to the Gulf Coast, where inventories have hit record levels.
“You’re getting to the point where there is no place to put this stuff,” Kingston said.
The lack of pipeline infrastructure at the Bakken Shale in North Dakota and other remote oil patches had caused short-term collapses in U.S. crude prices, but prices would typically recover quickly because competing U.S. markets would drive them back up, he said.
On the Gulf Coast, relief for oil gluts could come from international buyers — but that would require lifting the federal government’s ban on U.S. crude exports, an idea in much dispute in Washington D.C., Kingston said.
“What I’m concerned about is that the drilling decisions made for the future are going to start to assume the possibility of a market falling and not being able to get up,” he said. “You can’t assume we can keep it here and it will not affect drilling and production.”