Energy Prospectus

Energy Stat: From 'Drill Baby Drill' to 'Complete Baby Complete' — DUC Drawdown Reaching Critical Level

Over the past three years, the EIA’s drilled but uncompleted well count, or “DUC” count for short, has experienced Dr. Jekyll/Mr. Hide like fluctuations, both positive and negative. In fact, when looking at the chart below, the EIA’s data can best be described as a towering, high-speed rollercoaster, gradually climbing from August 2018 to June 2020 before plummeting in just 14 months time. For reference, it took nearly 38 months to add ~3,300 DUCs (Jun-17 to Jul-20) versus only 14 months (Jul-20 to Aug-21) to return to June 2017’s ~5,700 total. In today’s energy stat, we take a deep dive into what is driving this massive drawdown along with our perspective on when this “drop” will end.

Source: EIA, Raymond James Research

Bottom Line: In just 12 months, the U.S. DUC count, nearly 9,000 strong in July 2020, has fallen by ~3,300, the largest (and quickest) drawdown
to date. E&Ps are completing wells at record rates, with current DUC inventories now crossing the critical “normal level”. Over the last year,
completions have outpaced new drills by nearly 250 wells/month, an unsustainable delta of which has never occurred. Since July 2020, operators
have largely maintained production levels by tapping their vast supply of DUCs, opting to forego costlier new drills in favor of cheaper completions.
Similar to the sentiment echoed in our most recent oil forecast, for production levels to sustain current rates (let alone grow), a substantial influx
in rigs, and therefore new drills, are needed. Operators must devote additional capital towards new drills (soon) or risk a slow, but sure, decline
in production.
---------------------
MY TAKE:
> Obviously, upstream companies cannot complete more wells than they drill for much longer. Eventually, they will run out of DUC inventory.
> Despite completing 250 more wells per month than are being drilled over the last twelve months, U.S. oil production has not returned to pre-pandemic level.
> This confirms my belief that U.S. oil production may NEVER get back to pre-pandemic level (12,860,000 BOPD in November 2019). It will take hundreds more rigs drilling for oil than we have running today and the capex and logistics to make that happen is a BIG TASK.
> Plus, except for the Permian Basin, the other oil basins are probably already passed Peak Production.
> This is also why I think Solaris Oilfield Infrastructure (SOI) will be a big winner for us in 2022.