Everyone knows that oil and gas is cyclical. But what we’re just starting to see is that the latest downturn has had lasting effects on the way operators approach drilling and production. The days of wildcatting and speculative investment are over—replaced by innovative, insightful, and data-driven approaches to extracting the world’s energy reserves.
When OPEC opened the taps in the fall of 2014, their goal was to crush the threat of a nascent shale boom in the United States. In theory, flooding the world with supply would force shale and offshore operators to curtail their efforts in order to remain fiscally viable.
Offshore production took the hint. But shale operators took a different approach: Rather than cut production, they got creative and worked to lower their cost per barrel.
In hindsight, it’s not surprising. With better and more accurate understanding of local geologies, and innovative methods for both drilling and extraction, players in the Permian, Bakken, and other oil-rich regions of the country were able to reduce costs to maintain ROI. And because of that, the United States is now a bigger player in the world’s energy economy than it has been for decades.
An interesting byproduct has been the number of drilled-but-uncompleted wells, also known as DUCs. These wells are where the greatest opportunities lie for completions companies in coming years.
Growing demand and changing markets
Despite recent years of overwhelming supply, demand has continued to grow. In 2017 alone, global energy demand grew 2.1 percent—more than twice the average annual rate seen over the last decade.1
Though a glut in supply remains, demand will eventually catch up. And rather than producing oil and gas now and storing it, operators have been drilling the wells but leaving the resources in the ground. When commodity prices fully recover and the economics make more sense, completions crews can get to work quickly to produce the wells.
OPEC and Russia agreed to cut production by 1.2 million barrels per day in December 2018, but thus far the market has been unimpressed. More cuts will be needed to stabilize the markets and prevent prices from falling further.
That hasn’t stopped operators in the United States from drilling wells. In fact, the innovations and optimizations necessitated by the downturn have been so significant that wells are being drilled faster than they can be completed.
According to the Journal of Petroleum Technology (JPT), the U.S. inventory of DUCs is greater than 8,200. The Permian Basin leads the way with more than 3,600 wells waiting to be completed.2
With all this potential—and without any centralized governing body regulating output—the United States is poised to gain even more market share in the energy markets. And that will mean a lot of work for the completions companies who can capitalize on the opportunity.