economically shut-in oil production

economically is a strong word

Hondo Lane | July 20, 2020

(Petrolytics) -Despite a tepid week of oil prices, US rig count appears to be slowing it's decline (and in Canada, a few rigs have been added). Additionally, frac spreads have continued to increase off of their May low of ~45 to roughly ~75 today. We've discussed in a previous post the importance of tracking both active rigs and active frac spreads. The gist being increasing drilling efficiencies and DUC inventory can complicate the short-term production outlook.

Similarly, the story out of North Dakota warrants attention. The ~500 kbopd of economically "shut-in" production is unlikely to return to pre-shut-in levels without a not insignificant amount of capital spend. Reservoir damage due to geomechanical stress and pressure depletion, as well as, well bore integrity issues due to incompatible fluids are risks. Not all is lost, however, as shutting-in wells prior to frac'ing nearby wells appears to be (potentially) protective against significant frac hits.

As prices improve to levels warranting the go-forward spend to bring on production (and takeaway capacity becomes more favorable), we should see how some of these issues play out. Extended or repeated shut-ins, however, are not favorable. The longer these wells sit in the ground, the more difficult it'll be to bring them back online.

In any case, we'll share a few links we found interesting:

  1. Chinese oil demand is waning?
  2. While zipper-fracs aren't new, can we further improve simultaneous operations?
  3. How are weather forecasts impacted by COVID?

#3 is particularly interesting. We need to continue studying second-order impacts of the pandemic and our response to it. Will an obsessively-clean and disinfected society result in a generation of children with severe food allergies? What would be the economic burden of such an outcome? It's difficult to say, but we should be asking these questions.

We'll wrap up with a quick safety moment - it's hot here in Texas. Stay hydrated and wear your suncreen.

Stay safe.