Global energy consultancy group, Wood Mackenzie, has stated that US unconventional operators have the potential to unlock US$10 billion in cash from drilled but uncompleted (DUC) wells if they were to address the problem of inefficient well factories.
Following the oil price crash, US operators understandably undertook several cost-cutting initiatives to diminish costs and become more efficient. Lower equipment costs, improvements in productivity and reduced headcounts are just some of the measures that helped drive 2018 breakevens down to under US$50 a barrel (bbl) from US$76/bbl in 2014. There is always room for improvement, however.
“Operators’ inventories have a large number of DUC wells, which we estimate represents US$26 billion in trapped cash from the 8,000+ DUC wells currently spread across the US,” the firm states.
Of this, it is suggested that 40 per cent (US$10 billion) could be made available for re-investment or returned to shareholders, or else face US$65 billion in lost revenue (pre-royalty). If these firms hope to capitalise on this opportunity, US unconventional operators must address the greater problem at hand, the high prevalence of DUC wells with an inefficient well factory.
US Operators should aim to look beyond the current approach of locally optimising the isolated performance of each operation (drilling, competition, flowback) and instead implement optimised well production systems. The firm highlights that focusing on these systems should become the new reality for many operators if they want to unlock these reserves. Below is a suggested guide for the industry to follow to unlock these reserves:
Rather than optimising discrete components, US unconventional operators could take a more ‘holistic view’ of the entire well production system, thus unlocking cash and becoming more efficient.
The full analysis can be found here.