NA Rig Count 2016-2-19
Using the an approximately 3900 drilled but uncompleted (DUC) count from a recent Bloomberg article , Baker Hughes Rig count data and reports on well completion rates from the states of Texas and North Dakota a projection of US DUC count was created. You can see by fall 2016 the DUCs will be all or mostly completed based on current and projected rig count should prices stay below $55.
While this is just an estimate and it is unlikely that completion rates are planned to fall off so dramatically in a single week, the projection does make a lot of sense in a general way. Burning through the remaining DUCs over the summer when demand is high and prices are typically supported by both high gasoline and refinery demand makes sense. Falling into a much lower completion rate just ahead of refineries going into their seasonal maintenance in October also makes a lot of sense. Reducing supply just as demand briefly softens.
Reports from around this same time last year had the DUC count close to 5000, meaning the DUC count has fallen by over 1000 with most of it likely happening since August 2015 given that is when the rig count really started to fall. The pace of depletion of the fracklog is accelerating with a falling rotary rig count.
It won't be long and others will be talking about how shale is no longer the swing producer and that it can no longer ramp up quickly to meet demands given the fracklog that was used to create rapid production increases will be non-existent. The headlines will be OPEC is back in control again. I expect $60-$70 oil ahead of the Aramco IPO in 2017 or early 2018. OPEC back in control and much higher crude prices should maximize what the Saudis can get for a 5% stake in Aramco.
Great blog. Do you still expect US production to fall by 2 mil bpd if rig count stays below 400?
ReplyDeleteYes, at this point US shale is locked into multiple years of decline. Rigs won't come back till we hit $60, and could actually continue to decline. When the DUCs are gone, actually the worst part of the production slide hits because you reach a point when there is a sudden drop off in completions because not enough rigs are working. I saw a similar pattern when looking at Texas completion rates in 2009. When prices and rig count plummeted, completion rates held up for awhile and then cratered at the end when so few rigs were working to drill new wells and the backlog was gone.
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