U.S. shale producers are setting aside more and more potential production in the face of falling prices, resulting in a glut of drilled but not yet fracked wells colloquially termed America’s fracklog. The FT explains:
For some producers, deferring completions makes sense. Completing a well can account for between a half and three-quarters of its total cost, so slowing completions is a quick way to start delivering the cuts in capital spending.The contango in crude futures, with prices significantly higher for next year than for immediate sales, also creates an incentive to leave oil in the ground and extract it at a later date.And with activity slowing sharply, the cost of completing wells could be lower later in the year, too, as the companies providing fracking and other services cut their rates.
Any analysis of this backlog—sorry, fracklog—has to come with a host of caveats. Many smaller producers can’t afford to sit idly by, and those that are deferring well completion may be doing so for a variety of reasons, perhaps choosing to wait for a North Dakotan tax cut expected later this spring or instead attempting to curb the amount of gas they burn off, or flare, in the face of tighter regulations.All that being said, the number of drilled but uncompleted wells is growing in America. Crude prices have been falling again recently, and yet many shale producers are finding ways to keep operations running as they refine processes, innovate new techniques, and strike better deals with services companies willing to work within smaller profit margins. If and when we see a sustained rebound in prices, we can expect a corresponding bump in American production as firms start tapping into this growing fracklog. Petrostates beware: that supply boost could end up checking any upswing in prices.