Large Inventory of Drilled but Uncompleted Wells Pose Opportunities for Handful of U.S. E&P Operators with Quality Assets; Challenges for Those Without, IHS Says
Daniel Yergin’s IHS Group has done considerable research on the large inventory of drilled but uncompleted (DUCs) wells that currently exist in the leading U.S. shale plays. They estimate 1,400 DUCs are considered to have attractive economics (break-even costs of below $30 per barrel) and offer a relatively fast-track inventory of new supply once oil prices recover. Their analysis suggests 269,000 barrels per day of new production could come from this inventory over a 12-month period. The upshot of their analysis is that a crude oil price upturn in 2015 and 2016 may prove short-lived as DUCs are brought into production. This dynamic raises the specter of a “w-shaped” recovery: a price rally, which triggers more investment and another production increase, which sets the stage for the next price drop.