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Hoping for a Price Surge, Oil Companies Keep Wells in Reserve
By CLIFFORD KRAUSS
DEC. 25, 2015
BERTHOUD, Colo. — The price of oil keeps dropping. But that didn’t stop a work crew from drilling a well recently on what was once a cornfield, carefully guiding the last sections of 13,000 feet of pipe spiraling into the hard Niobrara shale with a diamond-tipped bit.
Their well, one of hundreds drilled by Anadarko Petroleum in eastern Colorado’s Wattenberg field this year, could someday gush as many as 800 barrels of crude oil a day. But Anadarko is not planning to produce a drop of crude from the well for at least another year because the price of oil is now so pitifully low.
The well here is just one of more than 4,000 drilled oil and natural gas wells across the country producing nothing, but ready to be tapped quickly.
Many constitute a new form of underground storage, a new well inventory strategy for an industry in distress, one that has been forced to lay off tens of thousands of workers, decommission most of its rigs and write down assets.
For individual companies like Anadarko, the deferred completions — known in the oil business as D.U.C.s (an acronym for drilled but uncomplete) — are a bet on higher oil prices than the current level of about $38 a barrel, which is about 60 percent lower than in summer 2014. They are viewed by oil executives as a way to hoard cash as service costs plummet and are a flexible lever to rapidly increase production whenever oil rises again.
“We are adapting to market conditions,” Moe Felman, the Anadarko Rockies drilling operations manager, said as he watched workers pump drilling fluids and screw pipes together within sight of the snowcapped Rocky Mountains. “We are focused on what we can do to be ready to accelerate when the market returns.”
But the incomplete wells are also another reason many analysts say a recovery in the oil price is nowhere in sight. Together the well backlog could produce as many as 500,000 barrels of oil a day, about the same amount of oil that Iran is expected to add to the glutted global market after it complies with the recent nuclear deal by the end of next year.
Some analysts say oil companies like Anadarko, EOG Resources and Continental Resources may collectively risk suffocating the very price revival they anticipate by releasing abundant new supplies once prices inch up. Others say the eventual impact would be small and short-lived, but since the industry has never used this strategy before, no one can be sure.
“If prices start to creep up in the U.S., a lot of production could come on line in a quick manner that could put pressure on the supply-demand balance in the market,” said Christopher Kopczynski, a senior oil analyst at Wood Mackenzie, a consultant firm.
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I want one of those in my back yard.
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"New well inventory strategy"?
I don't think so. Big oil has been employing this strategy for decades, both here and abroad. Used to drive up through Jubail and Ras Tanura in the eastern province of Saudi Arabia and there was a forest of drilled and capped wells. The strategy is: when the price is low, try to limit supply until demand picks up or inventories get low enough to gouge prices.
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Right. We all know they have a knack for creating price increases and have been very successful at it for decades. I anticipate it and am enjoying the lower prices while they're here to enjoy.