The price of adding oil in shale plays will be rising this fall as the supply of wells that were drilled but uncompleted (DUCs) runs low.
In the top five US shale plays, the total has dropped from more than 6,300 DUCs at the peak in the spring of 2020 to around 4,500 now, according to a report from Rystad Energy.
That is the lowest since the fall of 2018 when oil prices were far lower than the current $70/bbl. Back then, the current price would have caused drilling to explode and production to rise, but not this year.
Drilling is up this year from last year’s deep slump, but it is just keeping up with the declines in older wells.
While there appears to be a large number of DUCs by historical standards, Rystad said the total is deceiving because many of them will never be completed. It classifies wells that have not been completed within 2 years of being drilled as dead because 95% of those wells have been fractured.
The inventory of live DUCs in the Permian stood at 1,550 in June, down from 2,350 a year ago, even though the number of drilling rigs working there has doubled to 243 in late July. The Permian DUC total is more than the other four plays tracked by Rystad combined—the Bakken, Eagle Ford, Niobrara, and Anadarko.
For those betting on continued high oil prices based on flat US production, this is good news. The energy data and consulting firm said the wells drilled this year will not produce enough to exceed the declines from wells drilled in the 2 previous years.
“Looking at the number of remaining ‘live’ DUCs, a significant oil supply response from the US onshore industry to the $70–$75 per barrel WTI market is practically impossible before the first half of 2022,” said Artem Abramov, head of shale research at Rystad.
It is also good news for service companies because adding production will require more rigs working as the live DUC supply shrinks.
DUC counting can also be a good way to start an argument with someone in the shale business, where there are many critics who say the Energy Information Administration's' (EIA) counts do not reflect reality.
That fact there were a lot more wells fractured than drilled over the past year suggests the number of DUCs left to complete is shrinking.
Since last June, DUCs allowed the industry to complete 5,700 oil-producing shale wells while drilling only 3,300, based on EIA statistics reported by the Baker Institute, an energy think tank at Rice University. It pointed out that the DUC drop in the EIA reports is its largest since it began gathering the stat.
One way of looking at DUCs is as the working inventory of wells that need to be added in the near future to meet production targets. Based on that view, the Baker Institute predicted that that the Permian, Bakken, Niobrara, and Eagle Ford will reach a stable level of DUCs this fall.
The Anadarko is the odd play out, however, being the only one whose inventory of live DUCs has actually gone up.
