OPERATORS PREPARE TO COMPLETE DUCs
DUCs in a row: Oilfield servicers to gain as more wells completed
By Swetha Gopinath and Amrutha Gayathri Wed May 4, 2016 3:05pm EDT reuters.com
U.S. shale producers are returning to unfinished business - completing previously drilled wells - offering a ray of hope for oilfield service providers battered by the oil slump.
Halliburton Co and Baker Hughes Inc, the world's second and third-largest oilfield services companies, indicated on Tuesday that they expected a drop in the large number of drilled-but-uncompleted wells (DUCs) as crude oil prices steady.
Oil is hovering above the $40/barrel mark after having rallied 20 percent in the past month.
This has been enough for several producers to return to the thousands of unfinished wells that dot shale fields across the United States - essentially to ready them for production.
Devon Energy Corp, Diamondback Energy Inc and SM Energy Co all said on post-earnings calls on Wednesday that they were completing more wells.
There were 1,732 "abnormal" DUC wells in March - those that hadn't been completed within three months of drilling - in the top five U.S. shale fields, including Eagle Ford in Texas and Bakken in North Dakota, according to Alex Beeker, an analyst at energy consultant Wood Mackenzie.
That number is expected to consistently fall through the year.
Next month, for example, Beeker expects the number of such wells to drop by about 400.
"We don't see that volume (of DUCs) continuing to build; and in fact, it's being worked off in the stream of work that's out there today," Halliburton President Jeff Miller said on Tuesday.
Baker Hughes said it expected oil producers to complete several hundred wells every month as oil prices climb back into the mid-$50s.
Halliburton and Baker Hughes called off their merger on Sunday, after struggling to win regulatory approvals.
A WELCOME BREATHER
"Service companies will benefit, I think, in the second half of the year ... both on the pricing front and from increased activity," Topeka Capital Markets analyst Gabriele Sorbara told Reuters.
Toplines and profits at oilfield services companies have taken a big hit over the past year as oil slumped 35 percent. An increase in well completions will come as a breather.
"For Baker Hughes, this represents a significant near-term opportunity for both our artificial lift and chemicals product lines," Chief Executive Martin Craighead said on the company's first conference call in more than a year on Tuesday.
The company's artificial lift and production chemicals businesses help producers pump out more oil from existing wells.
Halliburton - which has a strong presence in fracturing and cementing service lines - and Baker Hughes fight for dollars spent on oilfield jobs with market leader Schlumberger Ltd.
To be sure, the fledgling recovery in spending won't mean the end of troubles for these companies.
"Even if DUCs come online, U.S. production will continue to fall, and until output stops declining, it's going to be a challenging market for oilfield service companies," said Rob Thummel, a portfolio manager at Tortoise Capital Advisors LLC.
"The number of new wells drilled in the United States has halved from 40,000, and the addition of a thousand or two thousand wells will not do much to arrest steep declines in shale production."
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Replies to This Discussion
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Permalink Reply by Lerret on
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The more you look at it the more this looks like the same old boom-bust cycle of the housing. All we need now is a good bank crisis for the taxpayers to bail out.
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Permalink Reply by Skip Peel - Mineral Consultant on
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Drilling will resume in the reverse order it declined. $50 crude will bring back a lot of core rock. $60 will add Tier One and maybe some Tier Two. It will take $70 or more to make Tier Three rock economic. This is obviously a guess on my part based on what operators are reporting concerning material and field service costs. Two things are for certain: well designs are much improved so recovery percentages are higher, and costs to drill a well will rise as more rigs return to operation.
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Permalink Reply by P.G. on -
So when prices rise to the point US production begins to increase,,,prices will start decreasing. Looks like the Saudis got this one right. Letting the US control prices by lowering or increasing production rather than them, huh?
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Permalink Reply by Skip Peel - Mineral Consultant on
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The U.S. will be the new global crude swing producer owing to the nature of unconventional reservoir development not because domestic E&P companies wish to be or because Saudi Arabia wants them to be. The politics of oil have changed for the foreseeable future. Major foreign exporters are losing their political clout as U.S. supply rises. Unconventional production may be slow to ramp up outside the U.S. but it will do so eventually further reducing the clout of countries like Saudi Arabia. OPEC is finished as a functioning cartel.
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Permalink Reply by P.G. on
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Doesn't the Saudis maintain the edge on costs of production?
Isn't that pretty much what it's about now?
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Permalink Reply by Skip Peel - Mineral Consultant on
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Yes on costs. But SA doesn't have to stop drilling below a certain barrel price. U.S. producers do. We've watched this play out the last two years. The price declines to the point that U.S. production declines. When prices rise so will U.S. production. The SA production over that time has remained stable or actually increased slightly. Once the only "spare capacity" of significance was the Sauds. That made them the swing producers. Now there is widely spread spare capacity. And the high cost producers become the swing producers owing to traditional market dynamics.
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Permalink Reply by Keith Mauck (Site Publisher) on
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From DrillingInfo...http://info.drillinginfo.com/drilled-but-uncompleted-wells-ducs-in-...
Raymond James Equity Research firm has publicly said that “if anyone tells you they know the [DUC] number, they haven’t done the work” and “frankly, any definite answer regarding the DUC question is conveying a completely false sense of precision.” They described the task of figuring it out as “Sisyphean,” referring to the Greek mythological king Sisyphus who was punished by being forced to roll an immense boulder up a hill, only to watch it roll back down.
Despite all the warnings Drillinginfo felt this number was too important to the oil and gas industry not to do something. I am happy to report the work has been done and that Sisyphus’s boulder is staying put. It could not have come at a better time. While in the past DUCs were not really an issue, today they could not be more relevant. Due to the fall in oil prices in 2014 a large inventory of US DUC’s has been building up, making them a market factor affecting future oil prices as they represent additional crude oil supply that could come back online quickly after prices rebound.
Whether you are an operator, oilfield services company, or financial services firm having your “DUC’s in a row” by knowing who, what, and where the DUC’s are can be a huge competitive advantage in today’s market. As an operator you need to understand where all competitor DUCs are located to make tactical decisions about what assets to buy or sell, which company owned DUCs make sense to bring online, and how much leverage to use with vendors. For oilfield service companies looking to complete DUCs you need to get there before the competition by identifying which DUCs will most likely be completed based on assumed breakeven oil prices. Finally, for equity and debt analysts, you need to know the most accurate value for E&Ps DUCs inventory to make well informed equity and debt investments.
A key part of the analysis and the reason Sisyphus’ boulder doesn’t roll back down the hill is that with DI Rig Analytics DUC counts update in real time. Any number published in the past was obsolete before the ink dried making all the hard work of figuring it out truly “Sisyphean.” Drillinginfo relies on a proprietary algorithm which uses GPS devices on over 95% of the US rig fleet ensuring the cleanest, and most reliable data set in the market.
Drillinginfo DUCs Intelligence is available for the following states with sufficient data coverage and appropriate reporting requirements: Alabama, Arkansas, California, Colorado, Louisiana, Montana, North Dakota, New Mexico, Ohio, Oklahoma, Pennsylvania, Texas, Utah and Wyoming.
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