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DUCs Falling; Permian Leads in Both Oil, NatGas Production, Says EIA

U.S. production for both oil and natural gas wells is forecast to increase from September to October in only one of the seven key onshore regions -- the Permian Basin -- the U.S. Energy Information Administration (EIA) said Monday.

The monthly Drilling Productivity Report (DPR) provides data on new-well production per-rig per region, production by region and for the first time, drilled but uncompleted (DUC) well information for the Bakken, Eagle Ford, Haynesville, Marcellus and Utica shales, Niobrara formation and Permian Basin. The seven regions during 2011-2014 accounted for 92% of domestic oil production growth and all gas production growth.

DUC counts as of the end of August totaled 4,117 in the four oil-dominant regions -- Permian, Bakken, Eagle Ford and Niobrara. There also were 914 DUCs in the three gas-dominant regions -- Haynesville, Marcellus and Utica.

In the oily unconventional regions, the estimated DUC count increased during 2014-2015, but it has declined by about 400 over the last five months, EIA noted. The DUC count in the gas regions "has generally been in decline since December 2013," officials said.

"When producers are under stress, as has been the case following the large decline in oil prices since mid-2014 that triggered a significant slowdown in drilling and completion activity since late 2014, changes in the number of DUCs can provide useful insight into upstream industry conditions," according to EIA.

"A high inventory of DUCs also has potential implications for the size and timing of the domestic supply response to a persistent or significant rise in oil prices, since completions of existing DUCs can provide an increase in production with or without any significant changes in the rig count."

Drilling and completion activity has declined since late 2014, but completions have experienced a deeper decline than drilling in the four DPR regions, EIA noted.

"The differential reduction in drilling and completion rates in these regions may be attributed to several factors, including long-term contracts for drilling rigs and lease contracts that mandate drilling and/or production in order to fulfill commitments made to the landowners and mineral-rights owners."

The situation appears to be somewhat different in the other three gassy areas, where "the production mix skews heavily towards natural gas, in which significant price declines began as early as 2012."

According to the DPR, only the Permian is expected to see higher output for both oil and gas from September to October. The Utica is expected to see an increase in gas production, but outside the Permian, oil output is forecast to decline or be flat month/month in the other major areas of the country.

The DPR uses recent data on the total number of drilling rigs in operation, as well as estimates of drilling productivity and estimated changes in production from existing wells to estimate changes in production.

In the Permian, oil production from September to October is forecast to increase by 22,000 b/d to 1.999 million b/d versus 1.977 million b/d. Gas production also should increase by 35 MMcf/d to average 6,898 MMcf/d. Monthly additions from one average new oil rig should rise by 4 b/d to 543 b/d, while each gas rig should produce 7 Mcf/d more to average 909 Mcf/d, the DPR indicated.

Bakken oil production is expected to decline by 28,000 b/d to 914,000 b/d in October, with gas output falling by 25 MMcf/d to average 1,547 MMcf/d. Gas production per rig is forecast to increase by 39 Mcf/d to 1,228 Mcf/d, while oil is set to rise by 21 b/d to 896 b/d.

In the Eagle Ford, oil production should decline month/month by 46,000 b/d to 981,000 b/d, while gas production is seen down by 198 MMcf/d to an estimated 5,555 MMcf/d. New gas output per rig is forecast to rise by around 47 Mcf/d from September, with a 17 b/d jump in new oil well production to average 1,153 b/d.

Haynesville oil production is forecast to be flat at 45,000 b/d, with gas production expected to decline from September by 34 MMcf/d to 5,810 MMcf/d. New oil well production also should be flat at 31,000 b/d, while new gas well output is expected to increase by 80 Mcf/d to 5,803 Mcf/d.

In the Marcellus, oil production should decline by 1,000 b/d in October to average 36,000 b/d, while gas output is seen falling by 22 MMcf/d to average 17,784 MMcf/d. New oil production per rig wells should be flat at around 69 b/d, while gas production from new wells is forecast at 150 Mcf/d higher at 11,583 Mcf/d.

The Niobrara region's oil production is predicted to fall by 8,000 b/d to 361,000 b/d, while gas production is seen down by 60 MMcf/d to 4,077 MMcf/d. Monthly additions from one average oil rig should be 22 b/d higher than in September to 1,004 b/d, while gas should be 75 Mcf/d higher at 3,172 Mcf/d.

In the Utica, oil production is expected to be flat from September at 69,000 b/d, while gas production is forecast to be around 2 MMcf/d higher to average 3,604 MMcf/d. Each new oil well in the Utica should produce around 8 b/d more from one average rig, while gas from new rigs should increase by 102 Mcf/d to 7,951 Mcf/d, the DPR noted.

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