It's been a rough year for oil and gas producers due to the cold and wet weather that has lingered longer than anticipated. It was actually the second-straight quarter that Nuverra Environmental Solutions (NASDAQOTH:NESC) pointed to the weather affecting its results. After losing the equivalent of 15% of its working days in the Bakken during the first quarter, it endured "extraordinarily cold and wet conditions" in the Bakken this past quarter which held the company back once again. It wasn't alone in its struggle with the weather.
What was interesting is that wells were being drilled, but simply were not able to be completed. That's one reason why the Bakken production of Oasis Petroleum (NYSE:OAS) was relatively flat last quarter as the company had 37 wells that were drilled but not complete. Looking ahead, the company believes that it will complete 40-45 wells next quarter alone after only completing 51 wells in the first half of the year due to the weather. These wells coming on line will provide a nice production boost.
I will point out that part of this is due to lumpiness as companies moved to multi-well pad drilling. However, as Nuverra CEO Mark Johnsrud notes, the weather is still having an impact on getting wells completed. On the latest conference call, he said that his company has seen that change in efficiencies with the multi-well pad:
As we were coming in to the spring, companies moved their equipment onto a multi-well pad and they were able to not have to move it. They could leave it on the same pad and drill two, three, four wells at one time, without having to move down the gravel muddy roads for fracking. There was places that had to shut down because the roads became impassable because of the wet conditions.
The move to multi-pad drilling when combined with weather issues is why, according to the North Dakota Department of Mineral Resources, there are nearly 500 wells still waiting to be fracked.
Weather hasn't just been an issue in the Bakken. According to Magnum Hunter Resources (NASDAQOTH:MHRCQ) CEO Gary Evans, one of the reasons why its newest Utica well isn't fracked is due to the weather. On the company's recent conference call he said:
We've been pounded with rain in Ohio, I mean, for the last 2 months. And so when the roads are wet, you can't get equipment in because you've built a pad on top of a mountain. You've got to use bulldozers to pull the trucks up. It's just -- that adds to your costs, and so we delay things because we have to. And then if Halliburton (NYSE:HAL) is frac-ing a well that's 10 miles down the road and it's raining over there, too, they can't get done with the frac because they can't get their equipment in, so [it] delays us frac-ing. So the weather has a huge impact on our business, and it's unfortunate that this part of the country where we're operating in has had some adverse weather really all year.
He went on to point out that last year its Bakken operations were so hurt by the weather that it caused the company to miss production numbers for a couple of quarters. The weather is clearly an influence that Magnum Hunter investors need to watch.
What's key for investors to realize is that while weather effects all companies, it affects the results of some in more direct ways. Both Nuverra and Oasis, for example, rely heavily on the Bakken for revenue. Meanwhile, a large and more diversified company like Halliburton barley notices when there is rain in Ohio. The takeaway for investors is pretty clear: Investing in a smaller energy company comes with a different set of risks. The weather often can be overlooked, until it holds back results.
Fool contributor Matt DiLallo owns shares of Nuverra Environmental Solutions. The Motley Fool recommends Halliburton. The Motley Fool owns shares of Nuverra Environmental Solutions and has the following options: long January 2014 $4 calls on Nuverra Environmental Solutions and short January 2014 $3 puts on Nuverra Environmental Solutions. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.