(Reuters) - U.S. shale producers are returning to unfinished business - completing previously drilled wells - offering a ray of hope for oilfield service providers battered by the oil slump.
Halliburton Co and Baker Hughes Inc, the world’s second and third-largest oilfield services companies, indicated on Tuesday that they expected a drop in the large number of drilled-but-uncompleted wells (DUCs) as crude oil prices steady.
Oil is hovering above the $40/barrel mark after having rallied 20 percent in the past month.
This has been enough for several producers to return to the thousands of unfinished wells that dot shale fields across the United States - essentially to ready them for production.
Devon Energy Corp, Diamondback Energy Inc and SM Energy Co all said on post-earnings calls on Wednesday that they were completing more wells.
There were 1,732 “abnormal” DUC wells in March - those that hadn’t been completed within three months of drilling - in the top five U.S. shale fields, including Eagle Ford in Texas and Bakken in North Dakota, according to Alex Beeker, an analyst at energy consultant Wood Mackenzie.
That number is expected to consistently fall through the year.
Next month, for example, Beeker expects the number of such wells to drop by about 400.
“We don’t see that volume (of DUCs) continuing to build; and in fact, it’s being worked off in the stream of work that’s out there today,” Halliburton President Jeff Miller said on Tuesday.
Baker Hughes said it expected oil producers to complete several hundred wells every month as oil prices climb back into the mid-$50s.
Halliburton and Baker Hughes called off their merger on Sunday, after struggling to win regulatory approvals.
“Service companies will benefit, I think, in the second half of the year ... both on the pricing front and from increased activity,” Topeka Capital Markets analyst Gabriele Sorbara told Reuters.
Toplines and profits at oilfield services companies have taken a big hit over the past year as oil slumped 35 percent. An increase in well completions will come as a breather.
“For Baker Hughes, this represents a significant near-term opportunity for both our artificial lift and chemicals product lines,” Chief Executive Martin Craighead said on the company’s first conference call in more than a year on Tuesday.
The company’s artificial lift and production chemicals businesses help producers pump out more oil from existing wells.
Halliburton - which has a strong presence in fracturing and cementing service lines - and Baker Hughes fight for dollars spent on oilfield jobs with market leader Schlumberger Ltd.
To be sure, the fledgling recovery in spending won’t mean the end of troubles for these companies.
“Even if DUCs come online, U.S. production will continue to fall, and until output stops declining, it’s going to be a challenging market for oilfield service companies,” said Rob Thummel, a portfolio manager at Tortoise Capital Advisors LLC.
“The number of new wells drilled in the United States has halved from 40,000, and the addition of a thousand or two thousand wells will not do much to arrest steep declines in shale production.”
Reporting by Swetha Gopinath and Amrutha Gayathri in Bengaluru; Editing by Sayantani Ghosh and Saumyadeb Chakrabarty