John Kemp, Retuers
U.S. oil and gas E&P companies are drilling new wells faster than they can be fractured and hooked up to gathering systems, creating a growing backlog of drilled but uncompleted oil and gas wells.
By June, the number of drilled but uncompleted oil and gas wells across the seven largest shale plays had topped 6,000, according to estimates from the U.S. Energy Information Administration. The estimated number of uncompleted wells across the seven plays has risen by more 1,000 since December 2016, the agency reported on July 17.
The problem is concentrated in the Permian Basin of Texas and New Mexico, where the number of uncompleted wells has risen by more than 800 since December and more than 1,000 since June 2016. In most other shale plays, the estimated number of drilled but uncompleted wells has been broadly stable over the last year.
There are now almost 2,250 uncompleted wells in the Permian, up from an estimated 1,200 a year ago, and compared with 3,800 across all the other plays combined. Since the Permian has accounted for more than 40% of the extra drilling rigs deployed countrywide over the last year, the concentration of uncompleted wells in the region is not surprising.
But the growing number of uncompleted wells represents an obvious imbalance and is ultimately unsustainable, so either the number of new wells drilled must slow or the completion rate must increase.
The lengthening backlog mostly reflects the shortage of fracking and completion crews, though in a few cases it may reflect a strategic decision to delay bringing wells onstream to wait for higher prices.
However, drilling is expensive, using up corporate cash, and wells do not start earning a return until they start flowing, so in most cases there is an incentive to flow them as soon as practical.
There are some indications the number of rigs drilling for oil may be stabilizing in response to the fall in WTI prices since February, which should help get the backlog under control. But the large backlog of wells already drilled implies output will continue growing through the rest of 2017 and into 2018, which is likely to act as a cap on oil prices.
And the inventory overhang of uncompleted wells will add to instability if WTI prices decline further and force E&P companies to curb drilling programs.
Recommended Reading
1Q24 Dividends Declared in the Week of April 29
2024-05-03 - With earnings season in full swing, upstream and midstream companies are declaring quarterly dividends. Here is a selection of dividends announced in the past week.
Laredo Oil Subsidiary, Erehwon Enter Into Drilling Agreement with Texakoma
2024-03-14 - The agreement with Lustre Oil and Erehwon Oil & Gas would allow Texakoma to participate in the development of 7,375 net acres of mineral rights in Valley County, Montana.
PHX Minerals’ Borrowing Base Reaffirmed
2024-04-19 - PHX Minerals said the company’s credit facility was extended through Sept. 1, 2028.
Supply Disruptions Ahead as Canadian Rail Workers Vote for Strike
2024-05-01 - The union, representing more than 9,000 employees at Canadian National Railway and Canadian Pacific Kansas City, announced that 95% of its members approved of a strike, which could happen as early as May 22.
CEO: Coterra ‘Deeply Curious’ on M&A Amid E&P Consolidation Wave
2024-02-26 - Coterra Energy has yet to get in on the large-scale M&A wave sweeping across the Lower 48—but CEO Tom Jorden said Coterra is keeping an eye on acquisition opportunities.