HOUSTON — Think the United States is awash in crude now? Thank the fracklog that it’s not worse.
Drillers in oil and gas fields from Texas to Pennsylvania have yet to turn on the spigots at 4,731 wells they’ve drilled, keeping 322,000 barrels a day underground, a Bloomberg Intelligence analysis shows. That’s almost as much as OPEC member Libya has been pumping this year.
The number of wells waiting to be hydraulically fractured, known as the fracklog, has tripled in the past year as companies delay work in order to avoid pumping more oil while prices are low. It’s kept crude off the market with storage tanks the fullest since 1930. The fracklog may slow a recovery as firms quickly finish wells at the first sign of higher prices.
“Once service costs come down and drillers begin to work through their higher-than-normal backlog, the market should start to price in that supply coming online,” Andrew Cosgrove, an energy analyst for Bloomberg Intelligence in Princeton, New Jersey, said by phone. “It may act as a cap on prices.”
Futures for U.S. benchmark West Texas Intermediate oil tumbled by more than $50 a barrel in second half of last year amid a worldwide glut of crude. They rose $1.99 to $58.15 a barrel at 1:11 p.m. on the New York Mercantile Exchange.
Oil production in the lower 48 states would rise 322,000 barrels a day to an average 7.485 million in the fourth quarter of 2016 if drillers start shrinking their fracklogs by 125 wells a month in October, Bloomberg Intelligence models show. The forecast assumes horizontal oil rigs fall another 10 percent through the third quarter and prices are unchanged.
A second scenario, in which crude prices rebound to $60 to $65 a barrel for an extended period and drillers put rigs back to work, increases supply by 500,000 barrels a day to 7.67 million.
The U.S. fracklog has ballooned as drillers wait for prices to recover, with oil wells making up more than 80 percent of the total.
The Permian Basin, which covers parts of Texas and New Mexico, had the biggest collection of unfracked wells as of February, with 1,540 waiting to be completed. The count totaled 1,250 in Texas’s Eagle Ford formation and 632 in North Dakota’s Bakken shale.
Last week, Raoul LeBlanc, an oil analyst with Englewood, Colorado-based consultant IHS Inc., pegged the U.S. fracklog at around 3,000 wells. Halliburton Co., the world’s second-biggest provider of oilfield services, estimated there are about 4,000 uncompleted wells, citing “third party estimates.”
Fracklogs are growing faster in the fringe areas of play relative to the cores where the most productive wells are, according to the Bloomberg Intelligence analysis. In the Eagle Ford, for example, counties at the edge of the play like Lee and Lavaca saw companies go from completing more than 60 percent of their wells in November to less than 20 percent in February.
Large independent producers such as ConocoPhillips, Occidental Petroleum Corp., Marathon Oil Corp., Hess Corp. and EOG Resources Inc. hold a significant portion of the backlog of drilled but uncompleted wells.
Those companies are already seeing more incentive to start eating into their backlog as crude prices have risen by a third since mid-March. After-tax returns would be 5 percent to 10 percent higher than they were just two months ago when oil was at $45, Cosgrove said.
ConocoPhillips Chief Executive Officer Ryan Lance said at the IHS CERAWeek Energy conference in Houston on Monday that increased well completions may exacerbate the supply glut, depending on whether oil demand rises.
“Those who are drilling and deferring completions — obviously if they get a price signal that the commodity price is coming back a little bit you’ll see more supply come on,” he said.
— Doan reported from San Francisco. David Wethe contributed from Houston.