U.S. shale
producers are drilling at the highest rate in 18 months but have left a
record number of wells unfinished in the largest oilfield in the country
– a sign that output may not rise as swiftly as drilling activity would
indicate.
Rising
U.S. shale output has rattled OPEC's most influential exporter Saudi
Arabia and pushed oil prices to a near four-month low on Wednesday. U.S.
production gains are frustrating Saudi-led attempts by the world's top
oil exporters to cut supply, drain record-high inventories and lift
prices.
Investors watch data on the number of rigs deployed in North American oil and gas fields as a
leading indicator for output. But the rising rig count and frenetic drilling activity in the Permian Basin in West Texas is not all about pumping oil.
During the 2014-2016 downturn in global oil prices, the number of wells left incomplete grew as companies shut down rigs, laid off workers and retreated from the fields. When prices picked up, operators were expected to pump the oil from those incomplete wells before spending money on drilling new ones.
Instead, the number of incomplete wells has risen. A record 1,764 wells were left unfinished in the Permian in February, according to U.S. government data going back to December 2013. In February alone, 395 wells were drilled and only 300 completed. That was the highest drilling rate in the Permian in two years.
The surprise surge in unfinished wells indicates that investors, traders and oil market players may need to reinterpret rig count data.
Reuters interviews with more than a dozen well completion service providers, oil and gas lawyers and industry experts show that some operators are drilling because their leases require them to do so within a specified time limit to keep their leases. But they may not be required to actually pump the oil immediately after they have drilled the hole.
Some leases do require firms to produce a minimum volume of oil. On those leases, many firms will frack one well and leave others incomplete. That allows them to meet their contracts with land holders but gives them flexibility to come back and pump the oil later.
Investors watch data on the number of rigs deployed in North American oil and gas fields as a
leading indicator for output. But the rising rig count and frenetic drilling activity in the Permian Basin in West Texas is not all about pumping oil.
During the 2014-2016 downturn in global oil prices, the number of wells left incomplete grew as companies shut down rigs, laid off workers and retreated from the fields. When prices picked up, operators were expected to pump the oil from those incomplete wells before spending money on drilling new ones.
Instead, the number of incomplete wells has risen. A record 1,764 wells were left unfinished in the Permian in February, according to U.S. government data going back to December 2013. In February alone, 395 wells were drilled and only 300 completed. That was the highest drilling rate in the Permian in two years.
The surprise surge in unfinished wells indicates that investors, traders and oil market players may need to reinterpret rig count data.
Reuters interviews with more than a dozen well completion service providers, oil and gas lawyers and industry experts show that some operators are drilling because their leases require them to do so within a specified time limit to keep their leases. But they may not be required to actually pump the oil immediately after they have drilled the hole.
Some leases do require firms to produce a minimum volume of oil. On those leases, many firms will frack one well and leave others incomplete. That allows them to meet their contracts with land holders but gives them flexibility to come back and pump the oil later.
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