Since 2014, oil and gas contractors and companies have been struggling to overcome falling oil prices. Many major oil and gas producers across the world have reduced their staff besides adopting unique methods to ride out the falling oil prices.
Many oil and gas companies in the US, the UK North Sea and other parts of the world have drilled oil wells but not completed them. They intend to complete the oil wells once the oil price improves. This information was revealed by the US Energy Information Administration in its monthly Drilling Productivity Report in September.
The report stated that each time that oil and gas companies are under pressure, they slow down their well drilling and completion activities. This has been the case since late 2014. Hence, changes in the number of uncompleted oil wells can offer a clear insight into the state of the upstream industry.
IHS Oil and Gas Analyst Pete Stark explained that under normal circumstances, oil and gas contractors and companies have to drill an oil well by a specific date. Once the drilling activities are over, the company uses an in-house crew or contractors to complete the well so that it is ready for production. Usually, the completion process takes about six months. However, to ride out the low market conditions, many oil companies have ceased completion activities until the state of the market improves. When this happens, it will restore the oil companies’ revenue flow.
Stark pointed out that this practice of delaying oil wells is not new, but in recent years, it has become more ubiquitous. He believes that changes in technology have allowed the oil and gas industry to change their working practices.
The cost of completing oil wells is quite high and usually makes up a substantial part of the overall cost of the well. By delaying the completion, oil and gas companies can reduce their operational costs until market conditions get better. This reduces the chances of incurring losses.