Two schools of thought have emerged on well completions amid the downturn.

In one camp, E&Ps are striving to fine tune completions with reportedly remarkable results.

Other companies have slowed or halted completions while oil prices are under assault by Saudi Arabian crude, the lifting of sanctions on Iraq and China’s crumbling economy. Their view: at these prices, why bother?

State officials have responded. In North Dakota, oil and gas authorities are working toward allowing E&Ps to defer well completions for 24 months, more than twice the normal duration.

At Barclays Energy Conference in mid-September, companies seemed focused on project execution and cash preservation, said analyst Paul Y. Cheng. “It appears clear that the governor of oil-drilling activity will be cash flow rather than drilling economics,” he said.

Companies emphasized the impact that drilling and completion technologies have had on costs and efficiencies.

“Nearly every company described how they continued to increase efficiencies that allow them to stretch their capital dollars,” Cheng said. “Cycle times to drill and complete wells have decreased in every major basin that allows companies to drill more wells per ring.”

Large-cap companies are among those putting off production. Anadarko Petroleum Corp. (APC) is among E&Ps that intend to defer well completions for now. The company expects to drill about 100 onshore wells in the second half of 2015, but will defer 200 completions while staying within its spending forecast of $5.55 billion.

And mighty EOG Resources Inc. (EOG) is sitting on a backlog of more than 300 drilled uncompleted wells (DUC) that should help reverse its decline in production.

In February, EOG was up front about slowing down production.

“We halted production growth deliberately,” said William R. “Bill” Thomas, chairman and CEO. “We’re not interested in growing oil in a low price environment.” selected, E Ps, well, completion, outcomes, delays, Carrizo, Chesapeake, Chevron, Concho, Eclipse, EOG, Goodrich, Marathon, Midstates, Whiting, Wells Fargo

Far From Finished
In North Dakota’s Bakken, completions have dropped so substantially that state officials are growing concerned.

As of July, the state’s backlog of DUCs was 914, a 45% increase from 630 DUCs in July 2014—a time when completion crews were unable to keep up with the pace of drillers.

The state is considering an extension for well completions. Currently, E&Ps can delay for one year the completion of a DUC, said Lynn Helms, director of North Dakota’s Department of Mineral Resources, on Sept. 14.

Helms’ concern is for companies under financial strain or being forced by a deadline to finish wells and push product to market at rock bottom prices. He said delaying oil output from uncompleted wells gives operators a chance to market oil at $60 instead of $35.

“It’s a whole lot better for everybody if we store the oil in the [Williston] Formation instead of Cushing, Okla.,” he said.

For now, North Dakota operators must either complete wells or plug and abandon within a year of drilling. The state is leaning toward allowing wells to remain in a not completed status for longer than one year, Helms said.

While few DUCs expire until December, in 2016 the monthly roll off of the wells will be a hundred or more a month.

Even large-cap companies such as Continental Resources Inc. (CLR) are backing away from the Bakken. Continental, which also maintains a massive presence in the Midcontinent, said Sept. 8 it plans to reduce rigs, wind its capital budget down by $350 million and defer well completions.

Harold Hamm, chairman and CEO, said the company’s operated rig count in North Dakota will drop to eight rigs from 10 by the end of September.

The company’s operations continue to excel. Even without completing wells, annual production is likely to be at the top of the company’s guidance, Hamm said.

"We are committed to living within cash flow until they recover," he said. "We are reducing capital expenditures to protect our balance sheet and to preserve the value of our world-class assets until commodity prices improve."

Helms said the decision, which will be made administratively, should let the industry know that “we’re willing to work with them.”

“It also sends a signal to world markets that the state is not going to force additional oil into already oversupplied markets,” Helms added.

Extreme Engineering
Not all E&Ps are complaining, at least not loudly.

Following the all-Bakken combo of Whiting Petroleum Corp.’s (WLL) with Kodiak Oil and Gas, it’s perhaps not surprising that the combined company had record production.

Whiting pumped out 135,835 net barrels of oil equivalent per day (boe/d). But the company also noted enhanced Williston Basin completions delivered up to 50% production increases at a 15% increase to well costs.

Other companies are similarly pushing for better wells and techniques. A favored technique to emerge is plug-and-perf. The method uses easily flexible techniques for multi-stage completions, with stages independently optimized for perforating.

Bakken operators report plug-and-perf methods are dramatically improving completions and increasing IRRs.

SM Energy Co. (SM) said in August that completions in the Eagle Ford and Bakken have improved well performance so much the company has the potential to double its inventory. With the added performance, the company said there is “no need for acquisition or dilution.”

In August, Bill Barrett Corp. (BBG) touted gains from its extended reach lateral (XRL) program. Bill Barrett, plug, perf, sliding, sleeve, completions, downhole, results Bill Barrett, with its flagship assets in the Denver-Julesburg (D-J) Basin, said that its completion designs are resulting in shallower decline curves and better results. The company’s XRL drilling days have been reduced by 40% and the northeast Wattenberg is generating 25% rates of return at commodity strip prices.

The company did not elaborate on how hedging factors into its returns. It said drilling and completion costs have fallen 25%, though it isn’t clear how much of the savings is attributable to service company concessions.

In the Eagle Ford, Sanchez Energy Corp. (SN) has redoubled its efforts to drive costs down, including rig reductions and drilling efficiencies.

Sanchez said in an August presentation its completions optimization has led to strong production in the Catarina, a condensate and wet gas window which it acquired for $639 million in July 2014. Its production results have been strong compared to offset wells results in Catarina using customized fluid to move engineered proppant further within the reservoir.

Other companies, such as Cimarex Energy Co. (XEC), have upped their spending on drilling and completions after raising money.

In May, Cimarex benefitted from $730 million in equity offering proceeds. The company has earmarked $790 million for drilling and completions, with the majority of the money going to the Delaware Basin Wolfcamp and the Woodford play in the Midcontinent.

Make Sense
Some E&Ps have bottled up production until prices recuperate.

Antero Resources Corp. (AR) has a $6.5 billion market cap and a $1.6 billion drilling and completion budget. In August, the company decided to tread water in the Marcellus, where it will defer 50 wells into 2016 in order to realize better natural gas prices.

The company expects the halt in well completions to increase its internal rate of returns (IRR) to 57% before taxes in 2016 compared to 39% IRR before taxes in 2015. The deferred production will add more than 350 million cubic feet per day (MMcf/d) in 2016.

“While a DUC backlog of 50 Marcellus wells deferred can lead to capital efficient growth once pricing improves, we view AR’s debt load and some exposure to a weak local price as limiting factors,” said Jonathan D. Wolff, equity analyst at Jefferies LLC.

Wolfcamp driller Approach Resources Inc. (AREX) said in early August it would fold and wait for a better hand. The company reported that as of June 30 it had $193 million in liquidity, including $752,000 in cash.

“Given the prolonged low commodity price outlook, we have suspended our drilling and completion activities for the remainder of the year,” said J. Ross Craft, chairman, CEO and president.

The company still expects 8% production growth and its oil production is 80% hedged, said David Tameron, senior analyst at Wells Fargo Securities.

“Approach reiterated its stance that it makes no sense to drill in this commodity price environment,” Tameron said.

Triangle Petroleum Corp. (TPLM), with a position in McKenzie and Williams counties, N.D., also plans to delay completions in the Bakken with an eye to better days.

As of June, the company had 127 gross operated wells. In September, the company reported a backlog of 18 rigs and that it was no longer running any rigs.

The company said a backlog of wells waiting on completion swelled as E&P companies have delayed completions. Like other E&Ps, Triangle has augmented the finish out of its wells with hybrid slickwater completions that have yielded about 50% more cumulative production than offset operators. Triangle Petroleum, core, completions, downhole

Gordon Douthat, senior analyst at Wells Fargo Securities, said Triangle’s production will track above the midpoint of the company’s guidance of 11,500-13,500 boe/d.

The company said it would return to drilling at prices of at least $60 and well costs stay at $7.2 million.

“Completion activity likely takes place at levels below this,” Douthat said.

Dominic Spencer, president of Triangle USA Petroleum Corp., said the company has the ability to be flexible for a long while.

“We can accelerate our completion program and add drilling rigs as it make sense or we can defer completions over the next nine months to 18 months in a lower for longer scenario,” he said.

Contact the author, Darren Barbee, at dbarbee@hartenergy.com.