The latest Drilling Productivity Report from the EIA, released yesterday (February 13, 2017), shows that while the combined rig count in the seven major U.S. shale plays rose about 25% in the fourth quarter of 2016 versus the previous quarter, and the number of wells drilled was up 29%, well completions were up a paltry 1%, leading to an increase in the inventory of drilled-but-uncompleted wells (DUCs). Completions accelerated a bit in January 2017, but DUCs still continued to rise. That certainly seems counterintuitive. With crude oil prices stable in the low $50’s over the past few months you might think that producers would be pulling DUCs out of inventory, and in fact there have been statements to that effect in several producer investor calls. This is not just an exercise in energy fundamentals numerology. If the DUC inventory is increasing, then production will not be ramping up as fast as the growing rig count would imply. But what if, as some early signs indicate, the historical relationships are out of whack and the DUC inventory isn’t growing but rather declining? In that case, forecast models could be understating the outlook for production growth, and the market could be in for a more rapid and steeper rebound in oil and gas production than many expect. In today’s blog, we delve into the DUC inventory data and its potential upside risk to production forecasts.
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