|Are one-day performance tests misleading investors?|
Tests done on new wells that boosted the fortunes of oil developers by billions of dollars during the U.S. shale boom are increasingly coming under scrutiny.
The one-day performance tests, which regularly spike company shares on their results, don’t provide enough data to predict future potential, according to a study by Drillinginfo, an Austin, Texas-based analytics and data firm. Additionally, few rules or standards govern the tests, industry observers say, making for inconsistent findings at best.
The result is that a practice that helped draw significant financing for drillers in an era of $100-a-barrel oil could become a liability as the price collapse leads investors to take a closer look.
“Now more than ever, it’s a priority for the industry to be more transparent, and do a better job at communicating what the longer-term productivity of wells in basins are,” said James Sullivan, a New York-based analyst with Alembic Global Advisors. Skepticism, he said, “is only going to grow.”
Drillinginfo’s results don’t stand alone. Other research, including by Australian mining and petroleum conglomerate BHP Billiton Ltd., have yielded similar results.
Along with the short time frame of the initial testing, developers use a range of procedures that can boost first-day output, according to Allen Gilmer, Drillinginfo’s chief executive officer and more than a dozen other analysts and company officials interviewed about the tests.Read much more in this story by clicking here.
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