Andrew Meyers is an associate director at the Houston office of international oil and gas consultancy Douglas-Westwood.

NAM operators try to focus on efficiencies, not OPEC

Andrew Meyers

NAM operators try to focus on efficiencies, not OPEC

Published at 09:51AM - 06/12/16

Many in the world of energy are looking to the OPEC cuts for price stability to gain confidence in future project investment. In North America, a large fragmented group of operators do not have the time or money to focus on global supply cuts or temporary oil price improvements.

While a price bump would improve cashflow needed for operations, particularly heavily-leveraged independents, it is not a long-term solution in competing with some cost-advantaged OPEC producers.

Since May, around 200 rigs have been added in North America, in part from a slight increase in commodity prices, but also largely due to improved cost and production focused well economics.

select-us-state-average-rig-count-change-over-q2-2016-q3-2016
Select US State Average Rig Count Change over Q2 2016 – Q3 2016
Source: Baker Hughes

So where are the savings coming from? In the early part of the year, drilling efficiencies (wells per rig) were maxed out as the operating drilling rig fleet had been whittled down to only the highest spec rigs while rig rates fell. As rig count has increased, drilling efficiencies have dwindled and expected to continue a slide as additional lower spec and legacy rigs re-enter the market.

The focus for operators is now largely concentrated on completions for cost savings and improved production. Well architecture changes such as longer laterals, increased sand loading and alternate material usage for savings has improved well NPVs by as much as 50% or more in some cases.

One trend that has taken hold is the cost advantage of using less expensive regional sands that are highly abundant and geographically advantaged to wellsites, specifically in Texas. Such economic improvements would also be positive news for the 3,000+ inventory of drilled but uncompleted oil wells (DUCs).

The Permian Basin has the largest inventory of DUCs and can benefit from the improved well designs and locally sourced proppant. While the OPEC-provoked oil price increase is warmly welcomed, companies would rather focus on what they can control.

NAM operators try to focus on efficiencies, not OPEC

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