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Houston — Drilling wells but deferring completions may be a factor in oil price volatility in the next several years and potentially even delay the industry's recovery, the CEO of ConocoPhillips said Monday.

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Even as signs are at hand that prices may be on the verge of rising, with estimated official oil production levels showing signs of flattening or slight declines, the industry has the potential to quickly bring back online large volumes of crude production, which could tamp down prices.

"We're in a bit of a more volatile world [because of] the ability of North America to respond to price signals both ways," Ryan Lance said during a news conference the opening of IHS CERAWeek in Houston.

"If you get a price signal, you'll see more supply come on," Lance said. "That certainly has the opportunity to exacerbate the problem depending on where demand is."


Company backlogs of drilled but uncompleted wells, sometimes referred to as DUCs, have become common in recent months because oil producers are reluctant to produce oil into a relatively low-priced market. However, they have drilled them because that is the least expensive part of well costs -- about 25% -- while completions make up about 75%.

Many in industry have become increasingly concerned that operators could start to complete a large backlog of several thousand industry wells if prices begin to rise to as little as $60-$65/barrel.

"As we look forward over the next few years, we see a more volatile world," Lance said. "If $80-$90 [per barrel] comes back, there's a good chance that $50-$60 comes back as well because of" operators opening the production spigots as oil prices begin to ascend.

Meanwhile, Lance noted that operators are seeing 20%-30% reductions in their well costs compared with 2014 peaks and appeared to be optimistic that industry signals are heading toward an eventual recovery. He noted refineries are coming out of turnaround, ramping up their capacity, and this should bring down high storage inventories at the Cushing, Oklahoma, oil hub and elsewhere.

These events should lead to slowing in second-half 2015 of US production growth, he added, which has galloped ahead in recent years and contributed to a global oversupply starting last year.

While the oil price at which industry could ramp up back is different for every company and every play type, "I hear people say [they will need] assurance that we're getting into the $60s and $70s [per barrel] and not dropping back into the $50s," Lance said.

ConocoPhillips is "planning for a ramp up [of our rig count] in 2016-2017 but it will be a function of price improvement," he said.

--Starr Spencer, starr.spencer@platts.com
--Edited by Jason Lindquist, jason.lindquist@platts.com