In a presentation this afternoon, Rystad Energy presented evidence that drilled but uncompleted wells (DUCs) could prevent or offset declines in Lower 48 U.S. shale production through the end of next year. Rystad of course cautioned that bringing these wells online will depend on the right price signals, but in its analysis the vast majority of DUC wells are economical at as low as $28 per barrel.
Rystad expects a 1.65 million barrel per day decline in U.S. shale production from July 2016 through December 2017. This will be complemented by a 350k b/d decline in conventional production in the Lower 48. However, in addition to a moderate amount of new drilling activity, the DUCs should be able to entirely offset these declines. With higher prices, abnormal DUCs will be added to supply, flattening production.
Contrary to a common assumption that completion of many DUCs is delayed because the wells are not as productive, Rystad notes that although there is a substantial range to DUC well productivity (as is the case for all fracking wells), average DUC productivity in terms of cumulative production is only 3 percent below the average well productivity for 2016. Rystad also noted substantial progressive increases in well productivity from 2014 to 2015 and 2016. In 2016, well productivity is up 30 percent over 2015. The chart below shows the full range of cumulative productivity from the DUCs, but also that the average DUC well that is now being completed is significantly more productive than wells completed in 2014 and 2015.
Rystad also notes that 80 percent of the current DUC backlog is commercially viable at a WTI price of $40 per barrel.
More and more producers are completing DUCs that are over 6 months old—Rystad sees a 400 percent increase in such completions over the past 12 months. There is also the possibility that industry will deplete its backlog of DUCs, in which case new drilling will be required to maintain U.S. production. However, total depletion of the DUC inventory is unlikely. According to Rystad, over 150 DUCs will need to be completed per month through the end of the forecast period.
Although this scenario is not highly likely, there has been a significant uptick in completions in recent months. Rystad argues with the charts below that the number of DUCs greater than six months old is growing, now representing 60 percent of the total DUC inventory.
Most of the DUCs are held by larger operators as part of strategic efforts to manage cash flow or drill when oil prices are higher. Rystad’s data shows that Anadarko is the largest holder with DUCs in the Niobrara, Eagle Ford, and Bakken. EOG, Continental, and Pioneer Natural Resources also have hundreds of DUCs.