Here is a well thought out article regarding rig counts, productive wells, and probable changes to UYS oil output later this year, fyi:
Shale producers postpone oil well completions
Shale producers postpone oil well completions
LONDON: EOG Resources became the latest major shale producer to state that it would "delay a significant number of completions" when it announced fourth-quarter results.
The company plans to end 2015 with 285 wells awaiting completion services, up from 200 at the end of 2014, it told investors during an earnings call on Thursday.
Continental Resources has also announced plans to go slow on well completions in response to the slump in oil prices.
Apache and Anadarko Petroleum are among other shale producers to announce a deliberate strategy of delaying completions.
US shale producers are postponing well completions to conserve cash and defer production until prices recover.
There are a large number of wells that have been drilled but are awaiting the arrival of pressure pumping crews to fracture them and service companies to link them up to gathering pipelines.
In North Dakota, there were an estimated 750 wells that had been drilled but not yet completed at the end of December, according to the state's Department of Mineral Resources.
Once these wells are completed, they will increase the number of producing wells in the state by more than 8 percent, from the current total of around 8,950.
At recent completion rates, it would take another 3-4 months to clear the backlog even if no new wells were drilled in the meantime.
Similar backlogs have emerged in the other shale plays. They have been a source of frustration for producers and mineral rights owners waiting for the oil to begin flowing and royalty payments to start arriving.
For the most part, delays in completing wells arose inadvertently as drilling outpaced completions during the frenzied drilling boom in the first eight months of 2014.
But now some exploration and production companies are deliberately postponing completions to improve their financial performance.
"It's a much more prudent business decision to wait. It will give us better capital returns if we do that," EOG's chief executive told analysts.
PRUDENT BUSINESS
Postponing completions has a double benefit — it can cut costs and cash outlays in the short term and enhance earnings in the medium term.
The cost and revenue profiles for shale wells are different from conventional ones and it is these differences that shale producers are seeking to exploit by postponing completions.
In a conventional oil well, the cost of drilling the hole (including casing and cementing) typically accounts for almost all the cost. The aim is normally to complete the well, put it into production and start recovering the capital expenditure as quickly as possible.
But with shale wells, the need to bring in specialised pressure pumping equipment and crews, hundreds of water tankers and sand to fracture the rock formation and complete the well adds a significant extra element to cost.
For some shale wells, completion costs now account for up to two-thirds of the total. Postponing completions can defer all these costs and help conserve significant cash in the short term.
In other cases, producers have contracts in place with drillers for an entire program of work cannot cancel them without paying substantial penalty fees, but they can then defer completions to minimize future outlays.
Shale producers are hoping completion costs will fall in future as prices for everything from pressure pumping equipment to fracking sand fall amid the slump in the oil industry.
On the revenue side, the production profile of shale wells is much more front-loaded than conventional oil wells. Initial production during the first 30-90 days tends to be higher but then declines faster.
In the Bakken, for example, a typical well will produce one-third of its expected ultimate production in the first 12 months and about half in the first three years.
Revenues depend on prices from the time the well is completed and put into production. If prices are expected to recover, it makes sense to postpone completions, rather than rush to finish the wells and put them into production when wellhead prices are $50 per barrel or less.
By postponing completions, shale producers are shifting some of their production from the first half of 2015 into the second half or even 2016 in the hope that prices will be higher.
RIGS v COMPLETIONS
By now, it should be obvious that the number of wells completed, rather than the number of holes drilled or rigs operating, is more important for determining short-term changes in oil production.
Completion delays (either unintentional or deliberate) add another source of noise in the very unstable relationship between rig counts and output.
Some observers have dismissed the significance of rig counts entirely, suggesting that they provide no useful indication at all about future production trends.
This is wrongheaded. In an ideal world, it would be nice to have real-time data on completions, and even better on initial production rates. In the real world, however, analysts must make the best use of the data which is available, which in most cases means rig counts.
While rig counts may not be perfect predictor of short-term production changes, they are the only data available in near real-time, and it is incorrect to state that they have no relationship at all to output.
Completion delays, as well as variability in the quality of rig equipment and shale wells, mean the relationship between rig counts and production can be unstable in the short term. Production forecasts based on rig count data must be made with extreme care and are subject to a high degree of uncertainty.
Nonetheless, the sharp reduction in the number of rigs operating in the United States, the smaller number of wells being drilled, and the decision by many shale producers to deliberately postpone completing them, all point to US oil production leveling off by the middle of the year.
— John Kemp is a Reuters market analyst. The views expressed are his own.
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