Texas well completions surge amid low prices

OREANDA-NEWS. June 05, 2015. Producers in Texas are working through a backlog of uncompleted wells that should buoy oil and natural gas production in coming months, despite the sharp drilling downturn.

The most recent data from the Texas Railroad Commission, the agency that oversees oil and gas development in the top US producing state, show that permits issued in April for new wells had fallen by more than half from a year earlier. In contrast, completions of oil and gas wells nearly doubled year over year to 2,181.

The increase in completions reflects a crucial shift brought about by a collapse in energy prices. Oil and gas drilling often exceeds the pace of well completions when energy prices are high, creating a backlog of wells that can be fractured and brought on line at a later date. Those unfinished wells can sustain production growth during periods of low prices and lead to rapid increases in output once prices recover.

Benchmark US WTI crude is trading near \\$60/bl, down by about 40pc from a year earlier but up from its 2015 low below \\$50/bl. Gas futures are trading near \\$2.60/mmBtu, also down by more than 40pc from a year earlier.

The price plunge pushed the US rig count last week to a 12-year low of 875 and put uncompleted wells in the spotlight. The inventory of those wells is difficult to track. Even Texas, with its long history of regulation, does not compile information on uncompleted wells, many of which will eventually produce large amounts of oil and gas. But producers and service companies can sometimes provide insight. Devon Energy, a large producer in Texas, said last month it had 130 uncompleted wells in south Texas' Eagle Ford shale.

The US Energy Information Administration has estimated that it could take producers through August to work through all the unfinished domestic wells. The agency is forecasting that oil and gas production this year will rise by 6.1pc and 6pc, respectively, from 2014 levels, even as the pace of growth slows in some key US fields such as the Eagle Ford, according to the agency's Short-Term Energy Outlook.

In addition, improvements in well design and drilling efficiency should help delay US production from tipping into decline.