Amie Sarnese leads both the data analytics and customer services teams at NavPort. With more than five years in data analytics, Sarnese ensures accurate and thorough analysis while strengthening client relationships and trust. She has a bachelor's degree in applied mathematics with a focus in actuary science from the University of Pittsburgh.
What is a DUC? No, we aren’t referring to the member of the waterfowl family that sits in a pond. DUC, to the oil and gas industry, stands for drilled but uncompleted wells. DUCs have been a major talking point for many in the industry lately, and the ability to track them will be crucial to understanding the future market and its direction.
Due to commodity prices for oil and gas, there are currently low incentives to complete wells. To complete a well (going through the final stage of fracking to start producing hydrocarbons) requires lots of resources and money—both of which are thin these days.
One theory about why operators may be drilling but not completing wells is that they are holding onto the well, hedging the bet that oil will rebound and they will get a higher cash return on their investment. Another theory revolves around ensuring that they do not lose their acreage before the lease expires. No matter which theory you support, DUCs are critically important when the market starts to turn around because all of the DUC wells have the potential to come online at similar times.
The 2016 Hunt
It is expected that operators will spend a significant portion of early 2016 working down the number of DUCs as a way to moderate overall spending, since drilling has already been completed on these jobs and only the frac remains. This should help sustain production numbers that may have fallen due to the market at minimal cost. This also means that there will be an influx in needed materials in order to ensure these jobs can be completed. The burden then falls to the well service providers.
The huge impact on chemical companies, proppant suppliers, water suppliers and transload companies will involve an abundance of inventory and materials on-hand to supply the surge in completions. While drilling a well can take several months from permit to spud, the amount of time it takes to complete a frac is significantly less, averaging 10 days in 2015.1 With the average horizontal well in 2015 pumping between 4.5 million and 10.2 million pounds of proppant and 4.5 million to 9.3 million gallons of water, suppliers will need these large volumes in reserve to complete the orders that are likely to come on line within a very short time of one another.2
Where are the DUCs?
While non-reporters can have an effect on total DUC counts, having a full picture of the well’s life cycle (i.e. permit date, spud date, completion date) allows for certain confidence in where the largest inventories of DUCs reside and who holds the largest market shares of DUCs. It is no surprise that the Permian, which holds the largest share of the U.S. completion market, 24 percent, from August 2015 through January 2016, also represents the largest share of DUCs at 20 percent of the U.S. inventory. Contrary to the relationship seen with the Permian, the Appalachian basin holds the second largest inventory of DUCs at 19 percent of the U.S. market, despite only representing 9 percent of total completions. The Eagle Ford has the third highest market of DUCs with just over 1,000, while Rockies and Williston basins are close behind with more than 850 each.
Which Operators Have the Most DUCs?
While several smaller operators have shut down shop, the operators that hold the largest inventory of DUC wells also represent the largest share of producing wells on the market. Looking at the entire U.S., EOG Resources is the reported leader, holding 330 that have a spud date prior to year-end 2015 and have yet to be completed, with the bulk of its inventory residing in the Williston basin (roughly 120 DUCs) and the Eagle Ford (90 DUCs). Anadarko Petroleum Corporation follows closely behind with more than 220 DUCs, 80 percent of which fall in the Rockies, a hard-hit region in the oil price slump. These two powerhouses separate themselves from their peers by nearly 100 DUCs.
Digging deeper into the basin driving the market share of DUCs—the Permian—the top six operators make up 25 percent of the total share: Occidental Petroleum Corp. and Concho Resources Inc. both represent 6 percent of the market with 79 DUCs each, while Energen Resources, EOG Resources and RSP Permian each have stockpiled 4 percent shares at 56, 51 and 50 DUCs, respectively.
Keeping track of who is drilling and holding production is just as important as who is drilling and completing wells. Keeping an eye on these DUC numbers over the next few months should be a telling sign of who plans to hold onto their production numbers by investing in completions in order to be successful during this lower price of oil.
1, 2. NavPort Analytics 2015 completion report