New Swing Producer? | Russell T. Rudy Energy LLC
Since the inception of OPEC, Saudi Arabia has acted as the “swing producer” of crude oil in the global market. With enormous oil and financial reserves, and operational flexibility, the kingdom has been able to move prices and manipulate market share.
However, a recent article in “Rigzone” cites a report by UK based consulting group, Douglas Westwood, which maintains that the U. S. onshore shale industry will be the “swing producer” of the future. The report cites the growing trend among shale operators to drill wells, but defer completion, until prices recover. The inventory of these drilled but uncompleted (DUC) wells continues to grow. While this is not sustainable for the long term, it makes sense if you expect a short to intermediate term price increase.
The underlying rationale is that production rates are currently increasing due to recently completed wells coming on stream. However by deferring completions, production rates will peak sooner, and then subsequently decline thereby allowing prices to recover. When that happens, the DUC wells can then be quickly brought on stream thereby boosting revenues. EOG Resources, Apache and Chesapeake Energy are all aggressively implementing this strategy. If this practice continues on a sufficiently broad scale, this incremental production could significantly influence markets.
In conclusion, “Whilst the oil industry has always been intrinsically cyclical, the control dials are now in the hands of a new market player.”
To read the article in its entirety, please go to http://www.rigzone.com/news/article.asp?hpf=1&a_id=137985&utm .
