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1,400 Eagle Ford wells drilled, but uncompleted, IHS says

Just because the market is down doesn’t mean companies operating in the Eagle Ford are giving up their leasing agreements or abandoning their assets. According to a new analysis from the IHS, almost 1,400 wells in the South Texas fields have been drilled but not completed (DUC).

Oil production businesses are trying their best to deal with a slumping market. Therefore, wells are being drilled but not advancing to the next step of hydraulic fracturing operations. Thanks to the 50 percent drop in the price of oil from 2014 highs, companies are doing what they can to refrain from pushing more petroleum commodities into an unforgiving market.

In related news, EIA: U.S. shale oil output to fall in May, first drop in 4 years.

According to a press release from IHS, this tactic could give a select few operators an advantage over competitors. Nearly 40 percent of those 1,400 delayed wells have a break-even costs below $30 per barrel. IHS lists BHP Billiton, Chesapeake, Anadarko Petroleum, EOG Resources, ConocoPhillips and Pioneer Resources as the companies who are benefiting from the drilled-but-not-completed well tactic. Thirty-three other operators account for the remainder.

“In this low oil-price environment, operators in the Eagle Ford and other U.S. shale plays are focused on optimizing the value of their assets and managing their costs, and these drilled, but uncompleted wells enable them to do that more effectively for several reasons,” said Raoul LeBlanc, senior director of research at IHS Energy in the release.

“First, the drilling costs of these wells were already incurred by operators prior to 2015, and the completion costs–which comprise the majority of well costs–can be negotiated at a cheaper rate since completion crews are now both available and available at cheaper rates. Second, if completion costs are fairly consistent in the play, then it stands to reason that wells with higher production will yield better returns on capital.”

According to Robert Fryklund, chief upstream strategist at IHS Energy and a co-author of the analysis, uncompleted wells are more desirable in the Northeast core sub-region of the Eagle Ford shale play. The companies in this region include EOG Resources, BHP Billiton and ConocoPhillips which “have significant financial flexibility and greater options.”

“On the other hand,” Fryklund noted, “operators who complete lower-productivity DUCs in the Eagle Ford west area may be challenged during the low-price environment and a few may delay completions until oil prices rebound. The operators in the play with these DUCs will follow different strategies depending on their financial strengths, asset portfolios, degrees of hedging and their stakeholder demands in this low oil-price environment.”

How or if DUC inventories are reduced will make operator strategies more transparent, the IHS stated.  Most operators, particularly those with deep reductions in capital budgets and ambitious growth targets, will seek to liquidate DUCs in 2015 to deliver on production volumes. A minority, the report noted, will make the decision to manage DUC conversion to shape growth in response to prices and costs.

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