Here is what I thought were very relevant points (the rest is here)
- Steep production declines are a hallmark of unconventional wells; it’s not uncommon for a well’s output to fall off by 80 per cent just one year after it comes online. There is a narrow window of time after well completion for a company to generate enough cash flow to fund drilling of the next expensive hole.
- Need for stronger balance sheets– Oil and gas companies are well known to spend all their cash flow, plus more. The greater sensitivity to commodity prices as described above means that there is a greater need to hold a larger reserve of capital to sustain drilling and production if prices fall.
- Now, higher well costs and constant budgets are forcing service providers in the field to retool their equipment for greater efficiency and a new normal of 10,000 wells a year.
The first point, I believe, is the most overlooked fact about the new norm in oil and gas drilling. The production schedule of shale and other unconventional wells can and will fall off a cliff, thus raising costs. We are likely to see the cost of energy resources rises and a waive of consolidations as unconventional wells become the norm.
- Steep production declines are a hallmark of unconventional wells; it’s not uncommon for a well’s output to fall off by 80 per cent just one year after it comes online. There is a narrow window of time after well completion for a company to generate enough cash flow to fund drilling of the next expensive hole.
- Need for stronger balance sheets– Oil and gas companies are well known to spend all their cash flow, plus more. The greater sensitivity to commodity prices as described above means that there is a greater need to hold a larger reserve of capital to sustain drilling and production if prices fall.
- Now, higher well costs and constant budgets are forcing service providers in the field to retool their equipment for greater efficiency and a new normal of 10,000 wells a year.
The first point, I believe, is the most overlooked fact about the new norm in oil and gas drilling. The production schedule of shale and other unconventional wells can and will fall off a cliff, thus raising costs. We are likely to see the cost of energy resources rises and a waive of consolidations as unconventional wells become the norm.
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