American Oil and Gas Reporter - April 2016 - 112

ConventionCoverage: Texas Independent Producers & Royalty Owners
he related.
Brackett went on to suggest that was
why the country's inventory of drilled,
uncompleted (DUC) wells was unlikely
to send a sudden tidal wave of new supply
onto the market at the first sign of price
recovery. "For every rig on a pad, there
are about two pads either fracturing or
tying in," he described. "There is always
a DUC inventory. It is not a bunch of
people building an inventory of DUCs to
fracture and put back into the market. It
is really part of the assembly line."
He expanded on that point later when
discussing the annual reports every public
operating company must file. Brackett
acknowledged that when his firm crunched
the year-end 2015 numbers, it noticed
the number of uncompleted wells exceeded
the historical 1-to-2 ratio of rigs to DUCs.
"We asked top operators such as Anadarko,
EOG and Chesapeake how many strategic
DUCs they had."
Ultimately, he reported, companies
have amassed about 500 strategic DUCs.
Statistically, that models to 100,000200,000 bbl/d. That would be several
times less than declining U.S. output, he
said, some which was attributable to the
fact that high-graded U.S. projects lacked
the wherewithal to overcome existing
wells' decline rates. "You have heard that
(today's) wells are much better than wells
drilled at the top of the cycle," Brackett
described. "Data from the RRC, the North
Dakota Industrial Commission and the
Colorado Oil & Gas Conservation Commission show that activity has fallen by
half, while the average well is about 11

percent better."
After all, he reasoned, only a handful
of companies own core-area acreage.
"You do not get to tell EOG, Pioneer or
Marathon that you would rather drill their
inventories this year," he quipped. "All
you can do is drill the inventory you
have."
Brackett also downplayed any parallels
to the 1986 market bust and discounted
the predictive value of the forward pricing
curve, which he said during contango always underestimated the magnitude of
oil price moves. "In a world where money
is free and storage is available, the market
eats that contango," he explained. "The
forward curve in contango beats down
the oil futures price. It is not the Wall
Street investor gambling on where oil is
going to be in a year."
Ultimately, he offered, his firm projects
U.S. supply will drop at least 500,000
bbl/d in 2016, and maybe twice that. "It
will be 500,000 bbl/d if the price recovers
fast, 1.0 MMbbl/d if it doesn't," Brackett
estimated.
Industry Discipline
The keynote remarks from Continental's Hamm offered a look at his company,
reviewed the successful effort of the Domestic Energy Producers Alliance-of
which he is chairman-to persuade Congress to lift statutory restrictions on U.S.
crude oil exports, and lent his opinions
on world market conditions. Like Brackett,
Hamm suggested equilibrium could arrive
sooner than many expect.
In contrast to the U.S. Energy Infor-

Outgoing TIPRO Chairman
Raymond Welder (left) with
Welder Exploration & Production Inc. in San Antonio,
pauses with incoming TIPRO
Chairman Allen Gilmer of
Drillinginfo in Austin, Tx.
Gilmer's term as TIPRO chairman begins on July 1.

112 THE AMERICAN OIL & GAS REPORTER

Reviving unconventional resource plays
will not be instantaneous, reasons Continental Resources President and Chief
Executive Officer Harold Hamm. He also
said his company projected that that the
world's supply glut would end during
2016.

mation Administration's prediction that
oversupply will linger into 2017, he said,
Continental estimates the glut will disappear during the second half of this
year.
"People claim there is a 6 percent
worldwide decline rate," he related. "Take
investment away and it goes to 9 percent."
Combine that with world demand that
Continental estimates will grow 1.3 MMbbl/d, and a 2-3 percent oversupply disappears quickly, Hamm said.
Moreover, reviving unconventional resource plays will prove much tougher
than flipping a figurative switch, Hamm
contended. "The Bakken has gone from
228 rigs to fewer than 40," he observed.
"You cannot turn it back on overnight
when a lot of those people went home to
Louisiana. If we step the rig count up in
the Bakken pretty quickly, it still will be
a year and a half before we add to supply.
I think most other plays are close to that,
although the Permian and similar areas
probably can turn it back on more quickly."
Even so, as Hamm considered the industry's way forward, he cautioned producers not to follow the same behaviors
that oversupplied the market in the first
place. "It is going to take discipline across
the industry," he advised. "We are going

American Oil and Gas Reporter - April 2016

Table of Contents for the Digital Edition of American Oil and Gas Reporter - April 2016