What Does the USA DUC Draw Reveal?
(The views and opinions expressed in this article are those of the attributed sources and do not necessarily reflect the position of Rigzone or the author.) Citing recent figures about drilled but uncompleted (DUC) wells from the statistical arm of the U.S. Department of Energy, an informed market-watcher tells Rigzone the overall trend from the past year demonstrates the agility of the U.S. oil and gas industry. Keep reading for his explanation, along with other insights. Tom McNulty, Houston-based Principal and Energy Practice leader with Valuescope, Inc.: As Rigzone noted earlier this week, on Monday the Energy Information Administration (EIA) issued a report that stated the U.S. DUC well inventory hit its highest level in June of last year, at 8,874 DUCs. Since that time, the DUC level has dropped by 27%. The hundreds of completions that have happened over a 12-month period illustrate how American E&P companies can convert their inventory of wells into cash flow fairly quickly, and at a reasonable cost level. While it is true that capital investment in E&P has dropped off precipitously, that does not consider the vast capital expenditures have been made already, months before, which made all of these DUCs. These wells are being harvested now to capture value at higher oil and gas prices, and there are still more than 6,000 DUCs out there that can be turned into producing wells in the near term. The investments were probably fueled by a lot of debt, and many companies got into trouble. This has been well documented. But the rewards of the investments can and will be captured now. Demand is rising, and American production will increase to capture more market share. Phil Kangas, Partner in Charge for Natural Resources & Mining, Grant Thornton LLP: As the COVID-19 virus is increasingly contained in major economies around the world, commercial activities that drive demand for crude continue to rise. The threat of variant flare-ups notwithstanding, surging oil prices have shown resilience in their upward march, reflecting levels not seen since 2018. Also, not surprisingly, cost continue to rise, as E&P firms are not immune to inflationary factors. The quarterly Dallas Fed Energy Survey released last week showed the index for oil field services firms input costs rose over 55% this past periodreportedly a record high and suggestive of significant cost pressures. Such cost dynamics support continued increases in shale prices. Kangas: One surprise this past week was that upstream production, at least in numbers of operational rigs, held steady despite rising prices and predictions of continued OPEC supply restrictions. Baker Hughes reported no change in rig counts as of last week. With WTI and Brent prices continuing their upward trend, production restraint may not last long. The OPEC+ crowd is still arguing as of this writing Friday morning. Brent and WTI seem to be stalled, waiting for news. I say that it will not matter because production outside of OPEC+, including production from the United States, will continue to rise regardless of what they decide. After all, these are commodity markets, and demand is recovering rapidly all over the world. Oil and gas prices today are high enough to make producers want to produce. To contact the author, email mveazey@rigzone.com