US shale operators with drilled but uncompleted wells to benefit from capital efficiency gains

Drilling all wells at once enables operators to negotiate better rates with service companies, who enjoy benefit of larger projects

operators

Drilling in the Bakken.

US oil and gas operators with significant inventories of drilled but uncompleted wells (DUCs) in the major plays will benefit from capital efficiency gains in 2016, according to a new study from IHS.

But conversion of these wells to production will have a limited impact on overall US production compared to production growth derived from new drilling activities.

IHS analysis indicates that production derived from approximately 2,750 net remaining DUCs is estimated to be more than 380,000 barrels per day by Sept. 2017, which is just 16 per cent of the estimated oil wedge production volume of 2.45 million barrels per day.

For natural gas, IHS estimates that production will peak at 3.5 BCF per day in Oct. 2017, accounting for only 19 per cent of wedge volumes of 18.58 BCF per day.

“While the overall production implications for U.S. supply are relatively small, on a company performance level, these DUC wells are critical to the operators that have them in their 2016 inventory because they will deliver production and significant capital efficiencies,” said Stephen Beck, senior director of energy research for the North America Onshore Service at IHS Energy.

Some of the operators with the largest remaining inventories of DUC wells include EOG Resources, Anadarko and Chesapeake Energy.

Operators such as Anadarko and EOG are two of the few known operators who employed a ‘drill and hold’ strategy and intentionally accumulated DUCS to shape growth when oil and gas prices increase, IHS said.

The companies continued to drill wells with rigs that were under contract rather than terminate the contracts and defer the completions of these wells.

IHS said delays in bringing these wells into production vary significantly by play, impacting supply forecasts. However, due to the DUC analysis, which is the only commercially available well-level and field-level assessment of these DUCs in major US plays, IHS has been able to identify consistent patterns for conversion, based on well and play analysis.

“When assessing the conversion strategies and production impacts from these DUCs, we at IHS found that in all major US plays, with the exception of those in Appalachia, there is a clear and consistent pattern of first-in, first-out (FIFO) development for these plays,” Beck said.

“Our IHS research found that this pattern of development is due to ordinary field-operating procedures inherent to pad drilling. Standard practices in pad drilling generate lags between when these wells are drilled and when they are completed.  Typically, this conversion lag-time averages about 120 days, but can extend to as long as nine months. This variability in the lag times is why DUC conversion estimates can impact production and supply forecasts materially.”

To optimize their pad drilling efficiencies and minimize risk, oil and gas operators typically drill all the wells on one pad then move to the second and third pads, if present, and do the same until all wells are drilled, Beck said. The operators will then proceed with the completion process.

“Drilling all the wells at once enables operators to negotiate better rates with service companies, who in turn, get the benefit of larger projects, but this leads to a batch-processing nature,” said Beck.

Some plays, such as the Eagle Ford in South Texas, have a minimum lag time, IHS said, due to its priority as a key and prolific producer, but it does still have a lag time.

The IHS analysis said the speed of conversion of these DUCs in any particular play is largely driven by the geology of the play and the operators in the play, some of whom have tremendous history, experience and understanding of the geology, which allows greater efficiencies.

Posted in: Energy News

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