DUC and Refracking

[dan_s]

You should all read this carefully:
http://seekingalpha.com/article/3103546 ... e&uprof=46

I am getting a lot of calls about the "noise" being made about a big build-up of wells drilled but not completed. Some are referring to it is "DUC wells". This is just another attempt to talk down oil prices. Whenever you see statistics used in an argument, you must keep them in context.

Last week one of our members sent me an article that said there were 4,500 oil wells that had been drilled which the operators were waiting for oil prices to go up before they completed them. The "sky is falling" part of the article said that when oil hits $60 or $65 all of these wells will suddenly be completed and we'd have a new "glut" of oil that would drive down prices.

Here is the truth (my version at least):
> There are approximately 4,000 oil AND gas wells waiting on completion. My guess is that 2,500 of them may be oil wells.
> A lot of operators in the Marcellus and Utica (including S-16 members GPOR and RRC) have found that fracing gas wells and leaving them shut-in for 3-4 months before placing them on-line significantly increases initial production and the EURs.
> After a well is drilled, the operator must analysis the logs and design a completion. The logistics are BIG in this business. You don't just call a HAL or SLB and say "please run out here tomorrow and frac my well". Plus, you have to wait for the midstream company to give you access to the gathering lines.
> Very few of the completions are actually being delayed until oil prices go back up. Maybe 200-300. The FACT is that VERY FEW companies can actually afford the practice of delaying production (i.e. - cash flow).
> Last year there were 55,000 oil & gas wells drilled in North America < Surprised?
> Back in October, when we had over 2,000 active drilling rigs running in North America there were an estimated 5,000 wells "waiting on completion"
> There are ALWAYS a bunch of wells waiting on completion.
> It is simple math = "It takes approximately 3X longer to complete a horizontal well than the time it took to drill it". In October, 2014 we had over 1,600 rigs drilling horizontal wells, so 1,600 X 3 = 4,800
> LAST BUT NOT LEAST: All the wells waiting on completion CANNOT AND WILL NOT BE COMPLETED AT THE SAME TIME. Therefore, there is no "flood" of new production about to come on-line.

This is a business with a lot of BIG NUMBERS. Here is another example. In January, U.S. oil production was 284,737,000 barrels or 9,185,065 barrels per day. That sure sounds like a lot of oil, but we still had to import over 7,300,000 million barrels per day. BTW now that the actual numbers are in for December and January, we see that U.S. crude oil production DECLINED by 135,357 barrels per day from December to January..