Source: S&P Global Platts, RigData RADAR, May 10, 2018
U.S. DUC Trend a Key Sleeper Element in Increasingly Volatile Oil Market
Drilled and uncompleted wells have been rising steadily over the past 18 months, according to Platts Rigs and Drilling Analytical Report (RADAR) published May 10, 2018.
After a decline in the monthly variance in Q4 2017, DUCs rebounded sharply this year, rising steadily until April ushered in a corrections. Much of that rise was due to a wildly anomalous spike in Bakken DUCs as that play moves from sweet spots to less prospective locations.
All that brings up questions:
· Is the recent drop in DUCs simply a response to higher oil prices—and what will be the production response with oil in the $70s?
· Will other plays start to follow the Bakken trend as higher oil prices make the currently more marginal prospects look more attractive?
· DUC variances may have dropped in April, but on net basis, since oil prices recovered in early 2017, the US has added about 1,300 DUCs. About 3,000-plus DUCs coming online in a short period could be destabilizing regardless of what happens outside the US.
· Certainly, there is a new circumspection among US operators. How long before stakeholders start demanding operators capitalize on the oil price spike, and how aggressive would such a response be as those DUCs start to come on line?
· Even with the intent to start up more DUCs, how will that be stymied by a lack of takeaway capacity—especially in the Permian—or tight availability of frac crews, frac sand, and other services?
· How cooperative would the Saudis be—backchannel deal or not—if Iran isn’t sufficiently chastened and starts chasing nukes again while enjoying the benefits of higher oil prices (and while the kingdom must restrain its production)?
The analysts with Platts Analytics will be taking a deeper look at these issues in the upcoming months.
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