Energy Prospectus

and why it will decline in Q1.

"After building a tremendous inventory of Drilled but Uncompleted wells, or DUCs, since 2016 (adding nearly 3,000), operators have drawn down DUC inventories for five consecutive months through October. Amidst this decline in the absolute number of DUCs, monthly completions have remained extremely robust, with the EIA reporting 1,373 completions in October, (~2% below the August peak and still above the level seen in any month last year). As a result of this, DUC "months of inventory" have declined by ~25% in 2019, and are now nearing what we believe are "normal levels". In today's energy stat, we show why we continue to believe the DUCs number is lower than the public data would imply, even after multiple downward revisions to past figures, and explain why operators can't maintain the current pace of DUC draws in 2020. As such, without a strong rebound in the price of oil to drive the rig count, monthly completions and by extension oil growth will have to stall significantly next year." - Raymond James Energy Stat 12-2-2019

Well completions are "seasonal". It is cheaper to drill and complete wells when the weather is nice. As I pointed out in my podcast on Saturday, U.S. oil production increases into year-end and then went on decline in Q1 2019. The decline will be worse in Q1 2020 because the active rig count is down 25% YOY, most companies' capex budgets are exhausted, the DUC inventory is way down and bad weather.

Winter weather is a big problem in North Dakota, DJ Basin, Oklahoma and West Texas. When I worked at Hess, North Dakota was one of our core areas. We shut down most field work from mid-December to the end of May (after "Spring Break-up"). Plus, a lot of companies want to get new wells online in Q4 so they can be included in their year-end P1 reserves.

Halliburton recently announce that they will lay off 800 workers in Oklahoma.

Most investors perceive the EIA DUC count as wells that have been drilled but have not been completed yet due to either 1) normal operational
delays; or 2) an operator intentionally delayed its completion (likely due to poor oil and gas pricing). The untold reality is that the industry still
drills a small amount of "problem" wells that have officially started the drilling process but are failed wells that will never be completed. These
failed wells could be due to tools lost in the hole, sidetrack problems, lost circulation issues, stuck pipe, or a myriad of other real world problems.

Bottom Line: Investor fears that a falling rig count will not translate into reduced completions, on account of ample supplies of drilled but
uncompleted wells is based on the incorrect assumption that DUC inventories can return to lows of 2016. They cannot, for one thing, U.S. onshore
completion activity (shown by the red bars in the graph above) is at an all-time high. As a result, operators are going to naturally require more
inventory to continue running efficiently at an expanded pace. Adding to this, the near ubiquitous adoption of pad drilling, increasing wells per
pad, and frac crew optimization have raised the "months of inventory" required for efficient operations to four months from the historical level
closer to two months of inventories. Making the situation all the more perilous, the EIA DUC data overstates the true amount of DUCs due to the
inclusion of hundreds of "lame DUC" wells that were drilled years ago and are never likely to be completed in the future. We estimate that the EIA
DUC data is overstated by almost 15% (or about 1,200 wells). Even assuming the EIA count is correct, the current disconnect between completion
activity and drilling is the biggest we've ever seen and cannot be sustained through next year. Using what we believe to be the correct count,
DUCs reach critical levels by February. At that point, frac crews will need to be idled or dropped as their simply won't be enough slack (DUCs)
to operate at today's rapid pace, supporting our below consensus oil growth forecast next year. - Raymond James 12-2-2019

If you'd like to read the full report on DUC well inventory from Raymond James, send me an email and I will forward it to you: dmsteffens@comcast.net