More drilling to come
Oklahoma City oil companies announce drilling plans for 2017.
Th ere was much agreement over the past two weeks as executives from Oklahoma City’s largest publicly traded oil companies reported 2016 earnings and discussed their plans for the future.
The biggest overarching theme was gratefulness that 2016 is over.
The companies have used the downturn over the past two and a half years to cut costs, focus on their best assets, improve techniques and processes, and reduce debt. The producers that survived the downturn generally are much stronger.
But it was a painful year.
By the fourth quarter, however, losses were narrowed and companies including Devon Energy Corp. and Continental Resources Inc. reported fourth-quarter profits.
Executives from Continental Resources, Chesapeake Energy Corp. and SandRidge Energy Inc. held conference calls with analysts on Thursday. Devon executives had their quarterly call last week.
All the executives boasted of reduced debt and improved techniques and processes designed to cut costs and increase oil and natural gas production. Executives from all four companies said they plan to boost drilling efforts in Oklahoma in 2017 and into the future.
“These are the best wells we’ve drilled in our careers,” Jack Stark, Continental Resources’ president and chief operating officer, said of some of the company’s new wells in central Oklahoma.
Production costs have tumbled in the downturn to the point where producers in many cases are making more money today at $50 oil than they did three years ago when oil sold for $100 a barrel.
“We’ve crushed our cash costs in 2016,” Chesapeake CEO Doug Lawler said.
Part of the reason for the lower drilling costs is because companies are drilling fewer wells, focusing only on the best of their portfolios. Executives and employees also have focused on improving technology and processes, reducing the time it takes to drill a well, adjusting the kind and amount of sand used in hydraulic fracturing, and making other improvements.
Costs also have dropped because service companies have drastically reduced their charges, threatening their own profitability. Service companies and parts suppliers have been hardest hit in the downturn, with many forced into bankruptcy or sales.
That part of the cost savings for producers likely is on its way out, much to the relief of services companies and parts suppliers. Increased drilling activity has led to renewed demand for those services and products.
SandRidge CEO James Bennett said his company’s budget assumes a 20 percent increase in many services costs.
“That will result in a small outspend of $60 to $70 million,” he said on Thursday’s conference call. “We will keep a close eye on these costs and are making improvements to offset the increases.”
SandRidge teams are reducing costs by drilling wells with multiple horizontal laterals up to two miles long that connect to a single vertical well portion.
Companies are testing other ways to increase drilling densities. Devon executives said they plan to drill up to 20 wells from a single well pad, sending wells in various directions at multiple depths in up to a half dozen producing rock layers.
Companies are preparing for continued, steady growth — as long as oil and natural gas prices cooperate.
“Looking beyond 2017, we expect significant annual production growth over the next few years,” said John Hart, Continental Resources’ senior vice president and chief financial officer. “We should be able to grow production 20 percent annually and remain cash neutral at $60 to $65 oil.”