What is 'Wildcat Drilling'

Wildcat drilling, also known as exploratory drilling, is the process of drilling for oil or natural gas in unproven or fully exploited areas, that either have no concrete historic production records or have been fully exploited as a site for oil and gas output. This higher degree of uncertainty necessitates that the drilling crews be appropriately skilled, experienced and aware of what various well parameters are telling them about the formations they drill. The most successful energy companies are the ones with a very high rate of drilling success, irrespective of whether the wells are drilled in known areas of production.

BREAKING DOWN 'Wildcat Drilling'

The term "wildcat drilling" probably has its origins in the fact that drilling activity in the first half of the 20th century was often undertaken in remote geographical areas. Because of their remoteness and distance from populated areas, some of these locations may have been, or appeared to be, infested with wildcats or other untamed creatures in the American West. Presently, with global energy companies having scoured much of the earth's surface, including deep oceans, for oil and gas, few areas remain unexplored for their energy potential.

Wildcat drilling amounts to a small proportion of the drilling activity of large energy companies. For small energy companies, wildcat drilling can be a "make-or-break" proposition. Investors in such companies can reap significant rewards if such drilling results in locating large energy reservoirs. Conversely, wildcat drilling that repeatedly results in dry holes can lead to adverse stock performance for small-cap energy companies and result in bankruptcy.

The other aspect of wildcat drilling comes from small producers exploring for oil in fields that have already been fully exploited by larger oil companies. These fields can have sizable pockets of oil reserves that are uneconomic for larger producers due to economies of scale, but are still worthwhile for smaller, more agile, wildcat drillers. The Massachusets Institute of Technology estimates that even with high oil prices, about two-thirds of the oil in known oil fields is being left in the ground (1). They say that is because existing technologies that could extract far more oil, as much as about 75 percent of the oil in some oil fields, are not being widely used by large oil companies. This leaves an important market segment open to smaller wildcat oil drillers.

Wildcat drillers have little impact on the market price of oil, but provide an essential role that allows for greater oil and gas output than would be possible without their participation.

RELATED TERMS
  1. Development Well

    A development well is drilled in a proven area for the production ...
  2. Drilling Mud

    Drilling mud, also called drilling fluid, aids in the process ...
  3. Exploration & Production - E&P

    An exploration & production company is known to be in a specific ...
  4. Working Interests

    Working interests refers to a form of investment in oil and gas ...
  5. Integrated Oil & Gas Company

    An integrated oil and gas company is a business entity that engages ...
  6. Proven Reserves

    After an oil exploration firm conducts a seismic survey on a ...
Related Articles
  1. Investing

    Unearth Profits In Oil Exploration And Production

    Drill down into financial statements to tap into the right companies and let returns flow.
  2. Investing

    How the Oil and Gas Industry Works

    The oil and gas industry has unique terminology that's crucial for investors to understand.
  3. Investing

    Peak Oil: What To Do When The Wells Run Dry

    Find out how to invest and protect your investments in this slippery sector.
  4. Investing

    Top 5 Oil Drilling Stocks of 2016 (PKD, PTEN)

    Learn about the top five oil-drilling stocks of 2016 and why risk-tolerant investors should consider them if they are bullish on crude oil and gas prices.
  5. Investing

    Understanding Oil Industry Terminology

    The drillers are just one aspect of the oil & gas industry, and by knowing some details of their role, you'll be better suited to make investment decisions.
  6. Investing

    A Primer On Offshore Drilling

    Learn the important ratios and terms that you'll need to know to get involved in this trading sector.
  7. Investing

    Investing in Oil Stocks vs. Oil Companies: What's the Difference? (USO)

    Learn about the major advantages, disadvantages and risks of investing in oil companies and investing in oil and gas exploration companies.
  8. Investing

    How does crude oil affect gas prices?

    Understand the origins of oil, how its price is determined and where its correlation with gas prices falls in the global economy.
  9. Investing

    Projected Gas Prices for 2016

    Learn what major authorities on gas prices are predicting for 2016, and about the different factors that can impact the price of gas.
RELATED FAQS
  1. How long do oil and gas producers need to go from drilling to production?

    Discover the process of oil well production and learn how long it typically takes an oil producer to move from drilling to ... Read Answer >>
  2. How does government regulation impact the oil & gas drilling sector?

    Find out how government regulation of the oil and gas sectors is often positive for the large companies, but may be negative ... Read Answer >>
  3. What is the average profit margin for a company in the oil & gas drilling sector?

    Understanding the profit margin is an integral aspect of analyzing whether an oil & gas drilling company is a worthwhile ... Read Answer >>
  4. How do average costs compare among various oil drilling rigs?

    Learn the average costs to an oil producer for purchasing either land-based or offshore oil-drilling rigs and some factors ... Read Answer >>
  5. How does the law of supply and demand affect the oil industry?

    Learn how the law of supply and demand affects the oil industry. Supply and demand determines the price of oil, which drives ... Read Answer >>
Hot Definitions
  1. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  2. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  3. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  4. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
  5. Internal Rate of Return - IRR

    Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
  6. Limit Order

    An order placed with a brokerage to buy or sell a set number of shares at a specified price or better.
Trading Center