U.S. shale producers will resume completing previously drilled wells, giving hope to oilfield service providers battering the oil slump.
Halliburton and Baker Hughes, two of the world’s largest oilfield companies, indicate they expect a drop in a number of drilled-but-uncompleted wells (DUCs) as oil prices stabilize. It teeters above $40/barrel after rallying 20 percent in the past month. This prompted many producers to complete unfinished wells sprinkled in fields across America, prepping them for production.
According to energy analyst Alex Beeker of Wood Mackenzie, Devon Energy Corp, Diamondback Energy Inc and SM Energy Co all stated they’re completing uncompleted wells unused within three months of drilling, a total of 1,732 in the top five U.S. shale fields. That number is expected to drop through progression.
Beeker expects that number to drop about 400 by next month. Baker Hughes expects producers to complete several hundred wells monthly as oil prices rise into the mid-$50s. “We don’t see that volume (of DUCs) continuing to build; and in fact, it’s being worked off in the stream of work that’s out there today,” stated Halliburton’s President Jeff Miller. Halliburton and Baker Hughes revoked their merger last week, struggling for approvals.
“Service companies will benefit, I think, in the second half of the year … both on the pricing front and from increased activity,” stated Gabriele Sorbara, Topeka Capital Markets analyst.
Profits at oilfield services companies have experienced large losses, over 35 percent with oil declines. Well completions will bring needed relief. “For Baker Hughes, this represents a significant near-term opportunity for both our artificial lift and chemicals product lines,” says Chief Executive Martin Craighead. Their alternative businesses help producers pump more oil from existing wells.
Halliburton and Baker Hughes continually fight with market leader Schlumberger Ltd. for money lost on oilfield jobs. The recovery in spending is not the end of troubles for them. “Even if DUCs come online, U.S. production will continue to fall, and until output stops declining, it’s going to be a challenging market for oilfield service companies,” said Rob Thummel of Tortoise Capital Advisors LLC. “The number of new wells drilled in the United States has halved from 40,000, and the addition of a thousand or two thousand wells will not do much to arrest steep declines in shale production.”
Article written by HEI contributor Marcela Abarca.