The Eagle Ford Shale is acknowledged as one of the highest producing plays in the nation; as such, the entirety of the play is saturated by drilled wells. To be sure, a map provided by the Railroad Commission of Texas (RRC) shows that as of May 1, 2015, 8,167 oil wells were currently operating or on schedule, with another 6,121 permits assigned as well.
Surprisingly, however, a significant amount of wells throughout the area have been drilled, yet not completed. In fact, according to a recent analysis by IHS, Inc., approximately 1,400 drilled wells have yet to begin producing oil in the Eagle Ford Shale.
The Reason Behind the Delay
At first glance, it may seem like an economic blunder for an operator to begin drilling a well, yet leave it unfinished, and thus remain unable to reap a profit from produced oil. However, there are certain key reasons that may be driving the operators’ decisions to delay production in certain wells.
For one, oil prices as of May 9 were sitting just below $60 per barrel, nearly half of the cost of a barrel of oil just one year ago. By leaving wells uncompleted, these operators can partially control the supply of oil, an action that ultimately helps avoid a further dip in price.
Furthermore, the analysis conducted by IHS, Inc. asserts that the drilling costs of these wells were already incurred before 2015; the completion costs, however, which constitute a majority of well expenses, may be negotiated at lower rates now due to the recent decrease in activity in the oil and gas industry.
In addition to this, some of the uncompleted wells in the northeastern portion of the Eagle Ford Shale have higher potential production values. As such, if the operators of these delayed wells pursue completion during the low-price environment, they stand a chance to earn a higher return on capital in the future.
When will these unfinished wells likely begin producing oil? As mentioned before, the operators of those wells with a higher production value may take advantage of the current lower completion costs; in turn, these wells may be finished before the price of oil rises again. Some wells, however, may have smaller potential, and it may not be until oil rebounds that these are finished. But the overall result will be massive; according to the analysis, within a 12-month period the completion of these wells could lead to an additional quarter million barrels per day flooding into the already booming Eagle Ford Shale.
This unique relationship has implications for EFS mineral rights owners. Contact us today for further information and a free property evaluation.