API: US well completions broke records during 3Q

Nov. 13, 2006
US oil and gas drilling reached its highest quarterly level in more than 20 years with an estimated 12,687 completions in the 3 months ended Sept. 30, the American Petroleum Institute said on Oct. 19.

US oil and gas drilling reached its highest quarterly level in more than 20 years with an estimated 12,687 completions in the 3 months ended Sept. 30, the American Petroleum Institute said on Oct. 19.

The total, which includes dry holes as well as oil and gas wells, was the most for a single quarter since the first 3 months of 1986 and represented a 9% increase from the same 2005 period when completions totaled 11,680.

“There were very real increases in drilling activity, which refute some critics’ beliefs that US oil development efforts don’t track higher commodity prices. They did this past quarter,” John C. Felmy, API’s chief economist, told OGJ Oct. 20.

Completions have grown for 12 consecutive quarters and reached an estimated 21-year peak of 37,261 wells and dry holes during 2006’s first 9 months, 11% more than 33,426 in the comparable 2005 period, API said in its latest quarterly well completions report.

Oil well completions grew at a higher rate than those for gas wells during the period, breaking a trend of several years, the trade association added.

It said that an estimated 3,960 oil wells were drilled domestically in the third quarter, 11% more than 3,562 a year earlier, while gas well completions climbed 9% year-to-year to an estimated quarterly record 7,480 wells from 6,883 wells.

In the first 9 months, API said, an estimated 11,545 oil wells and 21,897 gas wells were drilled in the US.

The move by some producers to oil from gas did not surprise industry observers. “It was driven by more favorable oil prices, which provided some extra money when they reached $77/bbl in mid-July. Natural gas prices were coming down after peaking a year ago,” said Rayola S. Dougher, manager for energy market issues at API.

Pressure on oil

“We saw crude prices improve the past few quarters, given events in the Middle East, Venezuela, Nigeria, and Russia, where companies are finding more obstacles to projects like Sakhalin,” said Frederick Lawrence, vice-president of economics and international affairs at the Independent Petroleum Association of America.

Meanwhile, natural gas prices fell to $4/MMBtu on the New York Mercantile Exchange strip but have recently improved, he told OGJ. “Natural gas still is strong, however, and this year, the [US Energy Information Administration] estimates that 19,690 development wells were drilled in the first 8 months, compared to 12,836 in the first 8 months 2 years ago,” Lawrence said.

While EIA estimated in September that an average 264 rigs drilled for oil in the US during 2006’s first 8 months-66% more than the average of 159 in the same 2004 period-US oil production fell more than 7% to an average 5.098 million b/d from 5.5 million b/d, he said.

“Although the well completion totals are very impressive, production isn’t keeping up. Producers need access to more supplies and have to pay increasing costs for equipment and personnel. The cost per well is increasing, which diminishes some of the value of the increased commodity prices,” Lawrence said.

Dougher said, “Many of our fields are being depleted. It takes ever-increasing amounts of money and technology to get oil and gas out. The best sites have been developed already. But there are new frontiers, such as Chevron and Devon’s Jack 2 well in the deepwater Gulf of Mexico.”

Meanwhile, gas production is growing in the Rocky Mountains, according to Jon Bargas, communications manager with the Independent Petroleum Association of Mountain States in Denver. “EIA estimates that we’ll pass the Gulf of Mexico this year as the largest source of this country’s natural gas. As long as the American people demand it as a clean-burning energy, the West will remain a heavy focus,” he said.

Most of the activity is on public lands, which requires cooperation with governments and communities, Bargas continued. “Oil and gas development involves less than 1% of the West’s federal lands, so the environmental impact is not that great, despite what some groups are saying,” he said.

API also reported that total estimated footage drilled in 2006’s first 9 months and third quarter reached 212,523 ft and 73,107 ft, respectively. The last time estimated total footage drilled reached this level was in 1985, it said.