Completing wells that have already been drilled costs much less than drilling a new well, so US operators have been using DUC’s backlog since the third quarter of last year as they widely promised. that coming out of the collapse caused by the pandemic, they would continue to spend discipline and seek to reward shareholders first with increasing cash flow.
CIC’s inventory over the past few months, instead of spending more money on drilling, has paid off. U.S. shale producers generated record third quarter cash flow amid rising oil and gas prices. At the same time, the reinvestment rate of shale-focused companies, excluding majors, hit an all-time low in the third quarter and is expected to decline further this quarter, Rystad Energy noted last month.
The completion of the DUCs was a major contributor to the Shale Zone’s record cash flow this year. But the record rate at which the number of these wells declined has already raised the question of how long producers could continue to rely on DUCs to maintain production levels and receive cash while keeping expenses stable, writes Loren Steffy, University of Houston energy scholar. for Forbes.
Not for too long, it seems, according to analysts.
The shale area is also aware of this and has already shown signs of higher drilling activity.
During the first half of 2021, shale producers mostly used up their DUC inventory wells, and the number of “live” DUCs fell to 2,381 wells in June 2021, the lowest level since 2013, a Rystad energy analysis shown in August. The total DUC count also includes what Rystad Energy refers to as “dead” DUCs or wells drilled more than 24 months earlier, which remain unfinished and are unlikely to be.
Drilling activity has increased in recent months, with the number of oil platforms increasing to 67 between early September and mid-November.
At the start of the fourth quarter, the continued addition of drilling rigs had already stabilized DUC’s inventory, and a modest build-up was already visible in September, according to Rystad Energy.
“This means that we can finally announce the end of the DUC-induced activity phase which has supported the higher level of fracking activity seen since the third quarter of last year,” Rystad Energy noted in October.
Shale producers have been prudently and within cash flow limits of drilling activity in recent months, adding more rigs and majors forecasting a moderate increase in capital spending. Some large producers, including Exxon, Chevron, BP and ConocoPhillips, have already reported they could add more rigs to their Permian operations as early as this quarter.
Yet capital discipline is still essential for the shale zone, where the rate of growth is expected to be slower than pre-pandemic rates due to capital discipline, labor shortages and soaring costs.
Annual crude oil production in the United States will average 11.1 million bpd in 2021, rising to 11.9 million bpd in 2022, largely due to the increase in the number of drilling rigs , which will offset rates of decline in production, the EIA said in its November report. Short-term energy outlook (STEO).
“Despite the rapid improvement in fundamentals, most shale operators have remained silent on their guidance for 2022, instead sticking to mantras of flat to single-digit growth over the coming year while putting finalizing their 2022 plans, which are expected to be released early next year, Rystad Energy noted in November.
“Even with the absence of firm upward revisions for next year, record third quarter profits and moderate growth expectations in 2022 are an impressive turnaround for the group,” the research firm noted.
Dan Pickering, Chief Investment Officer of Pickering Energy Partners, commented at the beginning of November on the road to follow for the American shale:
“We remain convinced that upstream management teams in the United States will remain true to their commitments in terms of capital discipline. It is simply too early for CEOs to look to higher production growth after more than a year of pledging abstinence from reinvestment. Calls by US politicians for more supply should be politely ignored – this fox has made too many runs in the chicken coop. ”
By Tsvetana Paraskova for Oil Octobers
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