Wells drilled but not completed ("DUC")

[dan_s]

Another term being used is "fraclog". IMO the impact on the oil price recovery is insignificant. - Dan

Halliburton's (NYSE:HAL) conference call generated a lively discussion of the industry's current fraclog. The following is the comment by the company:


There has been a lot of discussion around inventory wells - operators choosing to drill but not complete wells and then defer production until commodity prices become more favorable. Third-party estimates put this number around 4,000 wells. It is our view that although inventory wells can exacerbate the short-term activity declines for completions, it essentially defers the revenue opportunity. When our customers decide to increase activity levels, this will be beneficial for Halliburton as they are likely to increase completions in tandem with new well drilling, which could accelerate our rate of recovery during the upcycle.

While Halliburton brought up the topic, the follow-up comments made it clear that the company does not necessarily see the build-up of well inventory as something extraordinary:


First, [the inventory] represents we think about 4,000 wells - that's against the backdrop of 55,000 wells that were drilled last year. So that's one thought. And then the second is, it's really a limited subset of customers that can even afford to talk about drilled but uncompleted wells at least as a practice. So from our standpoint, without precision around the timing, it certainly looks like deferred revenue for Halliburton and arguably when it occurs it will accelerate sort of tightening and recovery.

Nabors Industries (NYSE:NBR) CEO, Tony Petrello, also mentioned the industry's fraclog in his macro remarks:


I think... uncompleted wells - 4,000 is the estimate I've heard - once we see some kind of rebound in pricing, you'll see some production response to that. I think it's going to make everything a little bit of a jag at return.

In my opinion, the view that the industry's current fraclog is building up fast and represents a significant overhang that may delay the cyclical recovery in oil prices is exaggerated. BTW during the 3rd quarter of 2014 there were over 1,600 rigs drilling for oil. The inventory of wells drilled but waiting on completion was higher then than it is today.