"Fracklog” is the latest term running around the oil world, a new game that oil producers are playing to try and outlast temporarily depressed oil prices. The Catch-22 is that the more doggedly shale players hold on to production, the longer prices stay depressed and the more difficult it will be to carry on.
Recently, one of the techniques that US oil producers have been using to keep production in reserve without relinquishing acreage is to delay well completions. The economics of shale drilling can be difficult for the oil producer; most leases require oil companies to develop at least some of the acreage in order to maintain control of the mineral rights, and several standard clauses allow landowners to renegotiate leases should production fall under a certain level. So, many smaller oil companies choose to partially develop lease acreage but stop short of 'completion' – the point in drilling when oil finally comes out of the ground. The completion stage is by far the most expensive.
It's a trick of necessity, allowing tremendous Capex reductions while still controlling the prime acreage at the same lease rates that were initially negotiated. But it has created what is being called a 'fracklog' – a backlog of ready production that companies plan to turn on as soon as market conditions allow. In other words, there's a lot of oil out there waiting for oil prices to rally.
And there's the problem – oil waiting for a rally puts continuing…