US unconventional oil output estimated to jump to 7.178 million b/d in June

Houston (Platts)--14 May 2018 408 pm EDT/2008 GMT

The US Energy Information Administration estimates US unconventional oil output will increase by a record 144,000 b/d in June.

In its Drilling Productivity Report released Monday, the EIA forecasts production to increase to 7.178 million b/d in the biggest month-on-month increase in the four-and-a-half years since the agency has published the report.

The Permian Basin of West Texas and New Mexico is slated for the largest increase by far at 78,000 b/d, for a total 3.277 million b/d of oil output, EIA said.

Trailing the Permian by less than half is the Eagle Ford Shale in South Texas at 33,000 b/d of projected oil production growth next month, for a total 1.387 million b/d.

Following the two big plays is the Bakken Shale of North Dakota and Montana, which is expected to show 20,000 b/d higher oil output in June, for a total 1.238 million b/d.

The Permian is by far the largest oil play in the US and is also the most active drilling basin with 463 rigs as of Friday, out of a total 844 oil rigs working last week.

In addition, the number of drilled but uncompleted wells in US unconventional plays appears to be slowing down. Those so-called DUCs rose by 55 to 7,677 in April, half the increase of 110 seen in March.

Domestic DUCs have risen gradually, but steadily, by more than 2,100 wells since November 2016 when they numbered 5,495.

Permian DUCs increased by 111 in April to 3,086 against a jump of 122 in March.

One reason why there is a build of DUCs is timing, James Williams, president of WTRG Economics, said. Operators drill more wells per pad, all in a batch, and similarly batch-complete them. That delays completions because none will occur until all wells are drilled.

"Generally, we're completing a lot more wells than we did six to eight months ago relative to the number of wells drilled," Williams said.

Williams, an economist, also noted EIA data shows the ratio of well completions to wells drilled in any given month has risen. In July it was 68% and currently it is about 80%. That lowers the DUC count even though it continues to rise because of the increasing number of wells drilled as companies execute their more expanded programs this year.

Upstream producers have typically always had some DUCs in their inventories -- normally because they simply did not have time to complete them. But since the industry downturn that began in late 2014, many operators deliberately drilled but did not complete wells for other reasons.

Initially, it was due to low oil prices -- producers did not want to produce their best wells into a market where prices were low -- but more recently, the DUC build is due to lack of sufficient completion crews and, potentially, oil takeaway capacity. Operators are ramping up drilling in the Permian, especially, and there is just not enough infrastructure to carry it to market.

Even though oilfield costs are starting to rise, drilling costs had been low enough that it was cost-effective to drill when prices for rigs, services and equipment were cheap.

During the downturn of 2015-2016, oilfield services companies gave producers price breaks to allow them to continue operating. But now costs are rising -- many say at least 10% to 15% this year -- with producers offsetting rising costs through efficiencies. US drilled but uncompleted wells inventory by basin (January-April, 2018): Anadarko, 965, 967, 967, 960; Appalachia, 812, 801, 784, 764; Bakken, 722, 720, 719, 719; Eagle Ford, 1,431, 1,455, 1,476, 1,494; Haynesville, 171, 171, 169, 166; Niobrara, 583, 566, 532, 488; Permian, 2,723, 2,853, 2,975, 3,086; Total, 7,407, 7,533, 7,622, 7,677. Source: US EIA.

--Starr Spencer,

--Edited by Jim Levesque,

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