Low Oil Prices Force US Producers to get Creative

September 16, 2015 Share Print 0

Easy money, super-sized frack jobs, and desperate drillers offering deep discounts to oil producers – all three have been credited for sustaining U.S. crude output during the worst price slump in six years.

Now there appears to be a new factor in the mix: old vertical wells that can quickly be drilled, injected with water or fracked for a second time to increase production at low cost.

Overshadowed by the fracking boom that delivered record oil and gas volumes, vertical wells are making a comeback as investors and producers shift focus away from production growth to capital discipline in the downturn.

“It makes more sense to develop vertical wells in a lower price environment because they are not growth plays but they are a very strong cash flow asset,” said Benjamin Shattuck, principal analyst at Wood Mackenzie. “They are going to give you that cash flow that you need today.”

It is too soon to know how big the long-term supply impact of this trend will be, but there are tens of thousands of older U.S. wells and companies say paying more attention to them is already bringing extra barrels.

Via Reuters

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Alfonso Esparza

Senior Currency Analyst at Market Pulse

Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.