The number of uncompleted oil and natural gas wells is slowly declining across the Lower 48’s major basins, but the current backlog should be enough to turn to sales until drilling increases, according to federal data.
The Energy Information Administration (EIA) in its monthly Drilling Productivity Report (DPR) on Tuesday analyzed production trends into November. It also reviewed the drilled but uncompleted, i.e. DUC, inventory in the seven major plays — Anadarko, Appalachia and Permian basins, as well as the Bakken, Eagle Ford, Haynesville shales and Niobrara formation.
DUCs at the end of September had declined overall by 77 from August to 7,592, according to EIA.
Only the Haynesville Shale added DUCs last month, up by four to 321. The Niobrara was static with 454 DUCs. The Anadarko completed 23 wells to end with a backlog of 681. The Permian, boasting the largest backlog, completed 21 wells to end at 3,525. The Eagle Ford completed 15 wells to end at 1,166. Appalachia and the Bakken each saw 11 wells completed, with Appalachia’s backlog at 575 and the Bakken’s standing at 870.
As Covid-19 cut into demand and pressured oil prices, U.S. crude production declined sharply in the first half of 2020, off 5.8% month/month in April and 16.6% in May, EIA noted. Output has been recovering since June, but rig counts remain near record-low levels.
Once a well is drilled, completions involve hydraulically fracturing the horizontal wellbore, a specialized and often costly process. Often, a crew from one company performs the drilling process and another crew from a different company performs the completion process.
“However…these phases are closely correlated to each other, and both can fluctuate in response to crude oil and natural gas market conditions, including demand and prices,” EIA noted.
“A DUC well inventory is necessary to provide flexibility in coordinating the drilling and completion phases to avoid operational delays, especially because of the long-term advanced booking required for completion crews.”
Exploration and production companies often maintain a large DUC backlog, equivalent to several months. EIA estimated that most DUCs are completed and turned to sales “within about one year after they are drilled. However, the timeline and rate of completing wells vary based on oil and natural gas prices and corresponding completion activities.”
The DUC inventory in August, with 7,600-plus wells, “could cover the current very low completion rate of 369 wells per month for 20 consecutive months, provided no new wells would be drilled and the low completion rate would not change,” EIA noted.
However, while completions require less incremental capital to turn to sales, “not all DUC wells will be completed if oil prices remain low.”
EIA said 10-30% of the current DUC inventory “may require significantly higher oil and natural gas prices for producers to complete them. If prices remain low, many DUC wells may remain uncompleted for years.”
The current backlog still may provide “several months of backstop well supply for new-well completion,” said researchers. “EIA expects that the inventory will supplement the newly drilled wells to provide a boost to new-well production as well as new-well production per rig in the coming months.”
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