Americas News
U.S. DUC Count Rises Dramatically, Sparking Talk They Are Close To Being Tapped
The concern in many quarters that an agreement on the part of Organization of the Petroleum Exporting Countries (OPEC) members to reduce production would cause a surge in prices and encourage U.S. producers to increase drilling has been raised again with the disclosure from the U.S. federal government that the number of wells stood at 5,069 in September, up from 3,768 in January 2014, before oil prices began falling.
Since companies have already spent the money on these drilled but uncompleted wells (DUCs), which are located in the country's seven most prolific drilling regions, producing the supply they contain will be cheaper than drilling and fracking new wells – meaning any rise in oil prices may prompt them to take action.
Ryan Duman, a senior analyst for Wood Mackenzie, told The Wall Street Journal he expects to see companies completing many of the delayed wells in the next 18 months: "You're at a point where pretty much every DUC that's sitting out there is in the money."
Indeed, Warren Henry, vice president of Continental Resources and a major Bakken player, told the Wall Street Journal that most companies view DUCs as "oil in the bank" and that his firm expects to have 185 drilled but uncompleted wells in the Bakken at year end, up from 135 at the end of 2015.
He added, "We would likely start working down the DUC inventory when we see a stable WTI price around $50."
Wood Mackenzie estimates that the extra DUCs reported in September, many of which are located in the Marcellus drilling region of Pennsylvania and the Bakken in North Dakota, can produce over 250,000 barrels per day of crude and 4 billion cubic feet per day of natural gas – the equivalent of about half of California's daily oil output in July.
But while Duman calls the untapped resources a "meaningful amount of supply" that would have "some implications on commodity prices," Tim Rezvan, managing director of Americas research at Mizuho Securities USA Inc., said it will take time to begin pumping them: "You can't get those turned on overnight."
Plus, with a stable $50 per barrel price being the impetus for production, it remains uncertain whether producers will gain the confidence to drill anytime soon: news and rumours accompanying the upcoming OPEC talks to ratify its output reduction deal have caused market instability to say the least, with oil approaching $50 one week and retreating the next (for the record, Brent on Tuesday settled up at $51.71, and West Texas Intermediate settled up at $50.29).
Moreover, it remains doubtful whether the agreement will be ratified, with the latest bad news on this front being OPEC and non-members leaving a Saturday meeting ahead of their official Vienna congregation unable to agree upon anything - other than more talks should take place.
