Refracking Is a Tremendous Opportunity

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 and Chesapeake Energy , 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 processOn Devon Energy's conference call, CEO Dave Hager detailed his company's history with refracking as well as its future plans:

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 potentialChesapeake 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:

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:

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.

Investor takeawayAs 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.

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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.

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