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DUCs Drive Pennsylvania Shale Production Growth Higher

Production from the Marcellus and Utica shales in Pennsylvania through August continued to increase when compared to the same time last year, mainly as the result of volumes from wells drilled in 2014 and 2015, according to newly released data from the state's Independent Fiscal Office (IFO).

Shale wells in the state produced 2.549 Tcf of natural gas between January and August, up from the 2.246 Tcf they produced over the same period last year, according to an IFO analysis of Pennsylvania Department of Environmental Protection data. The 13.5% increase was driven mainly by wells spud in 2014 and 2015, the IFO said. So far this year, 182 shale wells have been drilled, compared to the 783 wells drilled during 2015 and the 1,350 wells drilled in 2014.

The data also shows that drilled but uncompleted (DUC) wells peaked in 2014 at 973 before dropping to 852 last year. By August, the DUC inventory had fallen to 699 in the state's shale plays, according to the IFO. There were 7,363 producing shale wells in the state at the end of August, compared to the 6,575 producing wells reported at the same time last year.

Despite the year/year increase, production from Pennsylvania's horizontal wells between 1Q2016 and 2Q2016, dropped from 1.275 Tcf to 1.263 Tcf. Wells spud between January and June of this year declined by 60% compared to the same time in 2015. The IFO said earlier this year that unless shale drilling activity increases meaningfully or natural gas prices spike, the state's 2016 impact fee collections from producers could again decline (see Shale Daily, July 20).

The fee is charged for all unconventional wells in the state during their first 15 years in operation, regardless of how much they produce. It is calculated with a multi-year schedule based on the average annual price of natural gas. Wells in their first year of operation pay the impact fee at the highest level.

Pennsylvania reported 4.6 Tcf of natural gas production from shales last year (see Shale Daily, Feb. 22). But for most of this year, operators have been focused on reducing a DUC inventory that was built up over the commodity downturn that began in mid-2014. Some of the basin's leading producers have only recently announced plans to add rigs and completion crews with an eye towards growth next year. Production data released by Ohio last week showed a similar trend in the Utica, where natural gas production flattened between 1Q2016 and 2Q2016, going from 329.5 Bcf to 334.3 Bcf (see Shale Daily, Sept. 1).

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