Drilled but uncompleted wells, or DUCs, are wells that have been drilled by oil and gas companies but have not yet been completed and put into production. DUCs are an additional source of oil production in the U.S. as they are completed and put on production. Since 2017 the DUC count has rose dramatically until 2020 when operators reduced drilling programs and focused on completing existing DUCs. From the middle of 2020 until now, the DUC inventory has been decreasing while U.S. oil production has continued to remain relatively flat around 10,000 to 11,000 MBOPD.
How Many DUCs Are There?
At the end of 2017, there were over 3,000 wells that had been drilled but not completed in Texas. The number of DUC wells has continued to grow, led by the Permian Basin, to nearly 9,000 DUCs for the U.S. in July 2020. As operators restricted capital budgets during the COVID pandemic, many decided to start completing DUCs since they have already been drilled. The DUC inventory in the U.S. has fallen by about 2,300 wells since the 2020 peak with almost 1/2 of the DUC completions occurring in the Permian. As these uncompleted wells are converted to producing status, they are adding significant production volumes that is helping maintain relatively flat U.S. production as the North American rig count has been slowly recovering from pandemic lows in 2020.
Where Are These Wells And How Fast Can They Be Completed?
A Wall Street Journal analysis found that 85% of DUCs are located in just three states: Texas, Oklahoma, and Colorado. The Permian Basin makes up about 60% of all DUCs. The graph below shows historic DUC count by basin with an assumed extrapolation of completions based on recent trends. Over the previous 12 months, existing uncompleted well count has been falling. The U.S. has averaged 246 wells completed per month since beginning the DUC inventory decline in the middle of 2020.
What Is Current U.S. Oil Production?
In 2019, about 69% of oil production came from just 5 out of the 32 U.S. oil producing states: Texas, North Dakota, New Mexico, Oklahoma, and Colorado . At the peak of U.S. oil production in March 2020, about 12,800 MBOPD was produced domestically. Since then oil production fell to a low in May 2020 of nearly 9,700 MBOPD before averaging about 11,000 MBOPD since November 2020.
Will Oil Production Decline As DUC Count Falls?
The short answer is yes, though may take some time. If the DUC completion rate in the Permian continues at its current rate, the area could be back to levels at the beginning of 2017 by April 2022. Some DUC wells will also never be completed due to age of the wellbore and integrity issues that may have occurred which prevent stimulation. Once the DUC inventory has started to deplete, the U.S. rig count will likely need to continue rising to support oil production at its current rate. Figure 1 shows an assumption of flat oil production until April 2022 followed by an 8% exponential decline after the DUC count reaches about 3,700 wells. At this decline rate, and without renewed capital deployment for improving existing production or additional drilling to replace reserves, domestic oil production could potentially fall to nearly 10,500 MBOPD by the end of 2022. Prior to the pandemic, the last time the U.S. was at this level was towards the beginning of 2018. While this scenario is unlikely since oil price would continue to rise as domestic production falls, it does illustrate how the dwindling DUC count can have a major impact on bullish oil price and the need for new development in the near future.