Shale pro­duc­ers keep con­fus­ing oil an­a­lysts

The Oklahoman (Sunday) - - BUSINESS - BY DAVID WETHE Bloomberg

For U.S. shale drillers who have seen prices climb al­most 50 per­cent in six months, it’s been largely a rig-less re­cov­ery, a co­nun­drum for traders seek­ing to fore­cast the fu­ture.

Nor­mally, you’d ex­pect the rigs to re­turn to the field in sig­nif­i­cant num­bers as pro­duc­ers flush with added cash looked to boost out­put. But the weekly Baker Hughes tally has stayed re­mark­ably still.

The rea­son: ex­plor­ers are do­ing more with less, forc­ing traders to use a big­ger tool­box of stats, met­rics and gauges to track U.S. pro­duc­tion that’s ex­pected to top 10 mil­lion bar­rels a day as the year pro­gresses. That in­cludes ev­ery­thing from pro­ducer spend­ing sur­veys to oil field hir­ing re­ports, and even de­mand for the tiny grains of sand that prop open oil-bear­ing cracks.

“A well that comes on­line in U.S. on­shore to­day is dra­mat­i­cally dif­fer­ent than one that came on five or 10 years ago,” Leo Mar­i­ani, an an­a­lyst who cov­ers ex­plor­ers and pro­duc­ers at NatAl­liance Se­cu­ri­ties, said in a phone in­ter­view. “It’s just a dif­fer­ent an­i­mal.”

For the mar­ket, that means the coun­try that’s be­come the world’s swing pro­ducer and a thorn in OPEC’s side is be­com­ing a whole lot harder to read.

The num­ber of rigs drilling for oil in the U.S. — from the Gulf of Mex­ico to the Per­mian Basin in Texas to the Bakken shale in North Dakota — is less than half the count in the mid­dle of 2014, when the crude mar­ket crash be­gan. And yet, Amer­ica is set to ri­val Saudi Ara­bia and Rus­sia, with pro­duc­tion ex­pected to top 10 mil­lion bar­rels as early as next month and to reach 11 mil­lion to­ward the end of next year.

How? The com­bi­na­tion of faster and faster hor­i­zon­tal drilling and more in­tense frack­ing has al­lowed pro­duc­tion to ex­plode even as the num­ber of rigs drop. Up un­til about four years ago, it was safe enough to use the rig count to track ac­tiv­ity be­cause the in­dus­try was more re­liant on sin­gle ver­ti­cal wells. “You’ve got dif­fer­ent levers to pull to get in­creas­ingly ef­fi­cient,” James Wick­lund, an an­a­lyst at Credit Suisse in Dal­las, said in a phone in­ter­view. “There is not one clear ac­knowl­edged re­port­ing source for the met­rics that we use. It makes it a lit­tle bit murkier.”

Look­ing for clues

Brad Han­dler and other an­a­lysts at Jef­feries cob­bled to­gether a chart of nine other met­rics be­sides the rig count in a note to in­vestors this month. For ex­am­ple, the num­ber of frack stages in a well are ex­pected to in­crease 14 per­cent this year to an av­er­age of 28.5, more than dou­ble what ex­plor­ers were able to do in 2014. And the to­tal amount of sand crammed into wells this year is ex­pected to grow 20 per­cent to more than 100 mil­lion tons.

Ch­e­sa­peake En­ergy Corp. her­alded in the ar­rival of the mon­ster frack a lit­tle more than a year ago, declar­ing what it called “propaged­don” on one gas well in Louisiana with more than 25,000 tons of sand pumped into it.

Af­ter switch­ing from the old standby rig count to closely watch­ing the well count a few years back, the lat­est shift about a year and a half ago is to track how long the wells are drilled side­ways un­der ground and how many frack stages are in each of those wells, Wick­lund said.

At 7,500 feet, the av­er­age lat­eral length of a well is 50 per­cent longer com­pared to three years ago. And a rig can drill 25 wells a year, com­pared to 15 just two years ago, he said. But those are stats mainly gath­ered from third-party data providers such as Drilling­info Inc. and IHS Markit Inc.

On the free side, the U.S. En­ergy In­for­ma­tion Ad­min­is­tra­tion re­ports monthly the back­log of wells that have been drilled but not com­pleted. As of Novem­ber, the lat­est month avail­able, that’s 7,354 drilled but un­com­pleted wells, or DUCs.

And the U.S. Bureau of La­bor Sta­tis­tics shows that ser­vice providers are back to hir­ing again, with jobs up 21 per­cent since oil field em­ploy­ment hit rock bot­tom in Oc­to­ber 2016.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.