Drilled but uncompleted wells (DUCs) targeting oil in the United States reached a new peak in March, which GMP FirstEnergy believes may be reflection of changing drilling practices, particularly in the Permian Basin.
Total U.S. oil DUCs in March climbed to 4,581, which represents a two per cent increase over March 2016.
But a much bigger increase was recorded in the busiest U.S. oil play, the Permian, where DUCs were up a dramatic 47 per cent, at 1,864 in March 2017 versus 1,271 in March 2016.
DUC numbers are considered a vitally important tracking mechanism for sustaining oil production and mitigating natural gas declines. The dramatic rise in Permian DUCs, however, may not be an indication of intentionally deferred completions, which typically occurs for economic reasons.
“We’re still working through the reasoning, but if you look at the DUCs per active rig in the Permian, they’re actually declining. So I think what we’re seeing in the U.S. is producers moving to larger and larger pads, and with this increase in rig counts, you’re seeing increasing DUCs,” said Ian Gilles, director, equity research (energy services and infrastructure) at GMP FirstEnergy.
In other words, completions aren’t keeping up to the spurt in continuous drilling.
Consequently, the investment bank doesn't believe that the changes in the Permian’s DUC count is “abnormal yet,” given the resurgence in drilling activity.
Other DUC numbers in the latest DUC data from the U.S. Energy Information Administration reflect producer interest in various oil and gas plays in the United States and the amount of “dry powder” available for quickly bringing on more production.
The overall total U.S. oil and natural gas DUC count was 5,635 in March, down two per cent from this time last year and down seven per cent from a peak of 5,672 in January 2016.
On the oil side, the rise in Permian DUCs was offset by a 15 per cent drop in the Eagle Ford (1,285 DUCs in March 2017 versus 1,512 March 2016), a 22 per cent drop in the Niobrara (623 in March 2017 versus 801 in March 2016) and a 11 per cent drop in the Bakken (809 DUCs in March 2017 versus 914 in March 2016).
Natural gas DUCs, which only make up about 17 per cent of the total U.S. DUCs, have been on a bumpy decline since February 2014.
In March, there were a total 931 gas DUCs, which is an 18 per cent year-over-year decline from 1,137 wells in March 2016.
The Utica saw the biggest drop of 53 per cent, to 87 DUCs in March from 186 a year ago, while the Marcellus saw a 16 per cent year-over-year decline, to 662 DUCs in March from 785.