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

In one camp are the E&Ps striving to fine tune completions, some with reportedly remarkable results. In the other are companies that have slowed or halted completions while oil prices remain low. Their view: at these prices, why bother?

State officials have responded accordingly. 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 the 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.

E&Ps presenting at the conference 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 [and] that allows companies to drill more wells per rig.”

Large-cap companies are among those putting off production. Anadarko Petroleum Corp., for one, expects to drill about 100 onshore wells in second-half 2015 while deferring 200 completions to help stay within its spending forecast of $5.55 billion. And mighty EOG Resources Inc. is sitting on a backlog of more than 300 drilled-but-uncompleted (DUC) wells that should, eventually, help reverse its production decline.

In February, EOG was up front about the slowdown. “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.”

Far from finished

In North Dakota’s Bakken Shale, 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 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 well, said Lynn Helms, director of North Dakota’s Department of Mineral Resources, in mid-September.

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, Oklahoma,” he said.

Bill Barrett Corp.’s gains from its extended-reach laterals in the Denver- Julesburg Basin are indicative of companies’ success in upping production while cutting costs.

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. 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 would drop to eight rigs from 10 by the end of September.

The company’s operations continue to excel, however. 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.”

As for state action on completions deadlines, 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.”

E&Ps are focused on project execution and cash preservation in the current environment of low commodity prices.

Extreme engineering

Not all E&Ps are complaining—or at least not loudly—about completion delays, as their production continues to be robust.

Following the all-Bakken combo of Whiting Petroleum Corp. with Kodiak Oil and Gas, it might be expected that the combined company has reported record production. Whiting pumped out 135,835 net barrels of oil equivalent per day (boe/d) in the second quarter. 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 multistage completions, with stages independently optimized for perforating. Bakken operators report plug-and-perf methods are dramatically improving completions and increasing IRRs.

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

In August, Bill Barrett Corp. was touting gains from its extended-reach lateral (XRL) program. With its flagship assets in the Denver-Julesburg (D-J) Basin, the company said 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. has redoubled its efforts to drive costs down, including through rig reductions and drilling efficiencies. Sanchez’s August investor presentation said completions optimization has led to strong production in Catarina Field, a condensate and wet gas window that it acquired for $639 million in July 2014. Its production results have been strong compared to offset well results in Catarina using customized fluid to move engineered proppant further within the reservoir.

Other companies, such as Cimarex Energy Co., 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.

Waiting on price recovery

Some E&Ps have bottled up production until prices recuperate, however. Antero Resources Corp. 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 Shale, 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 IRR to 57% before taxes in 2016 compared to a 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 Antero’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. 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, according to 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., with a position in McKenzie and Williams counties, North Dakota, 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 operated wells (gross) waiting on completion and that it was no longer running any rigs. Like some other E&Ps, Triangle has augmented the finish of its wells with hybrid slickwater completions that have yielded about 50% more cumulative production than offset operators have achieved.

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 to13,500 boe/d. The company said it would return to drilling at prices of at least $60 and if well costs stay at about $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 makes sense or we can defer completions over the next nine months to 18 months in a lower-for-longer scenario,” he said.

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