Energy Producers Edge Closer to Tapping ‘Drilled but Uncompleted’ Wells

WSJ Resize-01Wall Street Journal | October 22, 2016 | Erin Ailworth

U.S. oil and gas companies have drilled thousands of wells they have yet to tap, creating a ready reserve of fuel that could surge onto the market when energy prices recover.

As producers report quarterly earnings during the next few weeks, a question looms: When will they start exploiting these “drilled but uncompleted” wells?

While the industry often has an inventory of drilled wells awaiting completion, the backlog has grown significantly during the past two years as companies such asContinental Resources Inc. and EOG Resources Inc. deliberately delayed tapping wells to wait for higher energy prices.

Federal estimates show the number of such wells in the nation’s seven most prolific drilling regions stood at 5,069 in September, up from 3,768 in January 2014, before oil prices began falling.

Because companies have already spent the money to drill the wells, known in the industry as DUCs, bringing on the supply they hold is cheaper than drilling and fracking a new well. That means DUCs are an economic proposition for many companies, especially with U.S. crude now trading at around $50 a barrel.

Ryan Duman, a senior analyst at energy-consulting firm Wood Mackenzie, said he expects to see companies completing many of the delayed wells in the next 18 months. “You’re at a point where pretty much every DUC that’s sitting out there is in the money,” Mr. Duman said.

Wood Mackenzie estimates that the industry has about 2,000 more wells awaiting completion than it normally would. Those extra DUCs are capable of producing more than 250,000 barrels a day of crude and 4 billion cubic feet of natural gas a day, the firm estimates. That is equal to roughly half of California’s daily oil output in July and West Virginia’s daily gas production the same month.

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