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Deferred Completions to Slow Domestic Supply Growth?

The current contango (expectation that future prices will exceed current ones) that exists in the crude oil market is providing a massive incentive to store oil.  A recent article in “World Oil” cites analysis by Genscape Inc. which concludes that as conventional storage facilities near capacity, oil producers are storing oil in their own wells.

This practice, known as deferred completions or DUC’s (drilled but uncompleted wells), is already being widely practiced and is a growing trend.  Cabot, Chesapeake, EOG, SM Energy, Apache and Anadarko already have 800 DUC’s in inventory representing 373,000 barrels of oil per day (bopd) and 528 million cubic feet of gas per day (MMcfgd).

At current prices, completing new shale wells does not make economic sense in most cases.  However, as EOG in the Eagle Ford shale has found “Deferring completions and receiving the improved pricing in the forward curve not only saves them capital this year, but would pay back the well investment slightly faster”.

Genscape has developed proprietary models for evaluating the economics of deferring wells in the Bakken, Eagle Ford, Marcellus and Utica shale plays, as well as the reactions of specific companies.

To read the article in its entirety, or access links to Genscape’s more detailed analyses, please go to http://www.worldoil.com/news/2015/4/09/deferred-completions-slowing-supply-to-us-market-genscape-says .

April 14, 2015 | Uncategorized