There is a growing consensus within the energy industry that oil and gas prices will stay lower for longer. That's a problem for the industry as they need higher prices to produce enough cash flow to maintain their operations. It's a situation that is forcing companies to look at out-of-the-box solutions to maintain production for the lowest possible cost, with refracking older wells emerging as a prime candidate to drive low-cost production. Two companies leading the way are Devon Energy (NYSE:DVN) and Chesapeake Energy (NYSE:CHK), both of which had a lot to say on their second-quarter conference calls about the process and its potential.
A new take on an old process
On Devon Energy's conference call, CEO Dave Hager detailed his company's history with refracking as well as its future plans:
[We have a] working laboratory in the Barnett. And if you look what we have refrac'd over the years, it's over 1,000 vertical wells. ... We've refraced refracs now in the Barnett about 50 times. And now we're working on horizontal refracs. ... And we probably had more of those done over time than you would expect. ... And we're also using that knowledge to actually go into some of our other plays. We've refrac'd I believe about 15 or 20 wells in the vertical Wolfberry in the Permian and have seen reasonable results. Not outstanding, but we're continuing to refine that. We've refrac'd a couple of wells in the Eagle Ford and also have refrac'd a well in the Haynesville. ... There is tremendous upside with the refracs on our inventory.
As Hager points out, Devon Energy has been refracking vertical wells for years and even refracked refracks. However, it is now starting to refrack horizontal wells, which is something that Devon Energy sees as having tremendous upside potential. One of the reasons it sees so much potential is because in just over the past couple of years it has introduced newer technology and completion techniques, which are getting much more oil and gas out of recently drilled wells. By employing these new techniques on older wells, the company believes it can improve their production tremendously.
Lots of upside potential
Chesapeake Energy, likewise, is really excited about the upside it has in refracking older wells. Jason Piggott, EVP of its Southern Division, went through a recent example of the success it has seen in horizontal refracks in the Haynesville shale area, saying:
We remain very positive on the base enhancing potential of the Haynesville refrac program. ... We were able to participate in eight wells via our non-operated positions. The average well['s production] increased 2.7 million cubic feet a day, and these tests have provided further verification that we have tremendous upside potential in the asset area.
As Piggott points out, Chesapeake Energy has experienced the impact of refracking wells by participating in nonoperated refracks in the Haynesville, which have performed very well as these have increased the wells' current production substantially. Because of that uplift the company sees tremendous refrack potential in that asset, as Piggot later pointed out:
[We've] calculated 529 Haynesville wells that were drilled prior to 2012 with over 60 different completion types. So those are our inventory of candidates for the Haynesville. If you look at their productivity per foot those wells averaged 1 million cubic foot per foot of lateral. The wells we complete today average almost 2 million cubic feet per foot of lateral that we drill. So that's really the upside that we see: just wells that were understimulated. ... So our potential out here is very large.
As he points out, Chesapeake's well performance in that one basin has doubled over the past few years as the company has perfected its process. This is why it believes that refracking holds such promise for the company. However, that's just one basin. Companywide the potential is even greater because, like Devon Energy, it has wells in several other basins that were drilled with earlier technology that could be improved with refracks.
As fracking technology has advanced over the last couple of years, it has vastly improved well performance. This is making companies like Devon Energy and Chesapeake Energy rethink their older wells as the performance of those wells could be improved by refracking with newer technology. Because the capital outlay is much less than drilling a new well -- around $1 million according to Chesapeake -- refracks could be a big driver over the next few years for companies as they look to keep output from declining without breaking the bank.
Matt DiLallo has no position in any stocks mentioned. The Motley Fool owns shares of Devon Energy. 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.