As costs fall, companies may start completing wells again

Oil companies keeping thousands of barrels of crude off the market by drilling but not completing wells may soon start flooding the market again.

Producers earlier this year began announcing plans to defer well completions, essentially storing their oil underground until the market rebounded and they could fetch a better deal for their products. But oil prices recently have ticked up slightly, and oil field services companies are charging less, giving producers more incentive to start pumping those wells.

“So prices start to recover and everyone says, ‘Oh great. Now we’re off to the races,’” Raoul LeBlanc, senior director of research at consultant group IHS Energy said in an interview with FuelFix.

If producers unleash a flood of crude, they heighten the risk that any crude price rebound will be short-lived as growing supplies again outpace demand, LeBlanc said.

“There’s a certain herd mentality,” LeBlanc said. “We are definitely in an industry where everyone wants to grow and be responsive to their shareholders and be a viable enterprise. Nobody wants to come out of the cycle weaker than they have to be. They want to be ready for the upturn.”

Estimates vary on the backlog of uncompleted wells. IHS believes there are 3,000 in the U.S., nearly half of which are in South Texas’ Eagle Ford Shale.

Energy research firm Genscape recently released an analysis finding that six companies alone, including Houston area-based Apache Corp., Cabot Oil & Gas and Anadarko Petroleum, had deferred 845 wells, a decision that each day stops 373,000 barrels of oil and 528 million cubic feet of gas from coming to market.

“That’s a lot of oil and gas for sure,” Randall Collum, managing director of supply side analytics at Genscape, said in an interview with FuelFix.

Only one company so far has publicly telegraphed its plans to attack its backlog of uncompleted wells. In its fourth-quarter earnings call, Apache Corp. said it would not complete wells drilled last year until oil field services costs started to fall. In the months since, those prices have tumbled enough to make completions attractive again, the company said in a statement.

“All wells we are drilling today, we are completing,” spokeswoman Castlen Kennedy said in a statement.

Other companies probably are considering resuming completions, said Collum of Genscape.

“I think the discussions are going on right now as to whether they should continue with (uncompleted wells) or not,” he said. “Prices are up and from an economic standpoint, it’s starting to make sense to go ahead and complete those wells.”

Anadarko Petroleum, EOG Resources and Chesapeake Energy, for example, have uncompleted wells in the Eagle Ford Shale that are economically feasible even if oil falls  to $30 per barrel, a newly released IHS analysis found.

“Those are the best wells in the Eagle Ford in the best areas,” LeBlanc of IHS said.

Some companies, including BHP Billiton and ConocoPhillips, have slates of unfinished wells in the Eagle Ford that are better than some of their producing property, giving them more options than any other operators in the South Texas play, the analysis said.

Completion makes up about 65 percent of the cost of a well. Now that crews are available and oil patch work is cheaper, oil companies will likely start attacking their backlogs, capitalizing on the opportunity to boost their production, the IHS report stated.