Haynesville DUC Count Declines through 2015 and 2016
In the last piece on uncompleted wells explored North Dakota showing the impacts and trends that the uncompleted wells have on the market. Now how does one figure out the number of uncompleted wells without over or under counting? This article will show the approach of the DUC analysis by using the Haynesville play highlighting some of the difficulties and uses of this data. The chart below shows a glimpse of the outcome of this analysis and where the DUC count is today.
Calculating the DUC Count in the Haynesville
Phase One: What is the definition of a DUC?
Lets take a step back and go over what exactly we mean by DUCs? There is a discussion about what constitutes a drilled but uncompleted well. Is it drilled and cased? When is the well considered temporarily abandoned? If it finished drilling last week, should that be included in the DUC count? The way Energent has defined drilled but uncompleted is a well that has either been drilled to TD, has been temporarily shut in or abandoned after drilling, or after the surface casing has been set.
Phase Two: Using Multiple Data Points to Gain a Clearer Picture
How do you normalize the data to make sure you are consistent across state lines as they have different well statuses? This is apparent in the Haynesville DUC analysis, having both Texas and Louisiana wells with different well data and statuses. In Texas, uncompleted wells can have state well status as permitted or shut in by producer. The permitted status is deceiving because it does not always show when a well has been spud and is sitting uncompleted, being in between statuses.The Texas DUCs may or may not have well completion reports filed 30-60 days following drilling. Similarly, in Louisiana wells that are permitted and spud, but the status has not changed to something like temporarily abandoned or not completed.
To clarify this picture, multiple other data points may be used to decipher the status of the well to show which are actually still permitted and which have not been changed. By using the state well status, well information, and spud dates the reporting lag can be cut down and the statuses will be more accurate.
Phase Three: How to Interpret the DUC Counts
We will now take a dive into the different ways people have been looking at uncompleted wells and the affect they have on the market and Haynesville operators. DUCs will have impacts on production, budgeting, and operator strategies – what operators are holding these inventories and in what time frame to they plan to complete these wells.
Market Impact: Haynesville Production Trend
Rig counts dropped heavily from the start of 2015 and continue to drop in 2016 with lower commodity prices. Haynesville gas production has remained fairly flat comparing 2014 with 2015 and the number of uncompleted wells went from about 250 at the start of 2014 and is now below 75. So how does the inventory of uncompleted wells affect production declines or increases in certain basins and areas?
Budgeting: Natural Gas Price to Total DUCs
Low commodity prices in 2015 and 2016 have forced operators tighten their budgets some have turned to completing DUCs instead of drilling new wells as it is less costly. This is visible in the chart below when natural gas took a dive at the end of 2014 and monthly changes in DUCs took a steep dive with only one month in 2015 adding to the inventory of uncompleted wells.
Operators: Understanding Different Strategies
Now how can you use this DUC analysis to get a better insight into an operators strategy on how they manage their inventory of DUCs? Looking at the chart below you can see BHP Billiton (NYSE:BHP) and Chesapeake Energy (NYSE: CHK) and the different timelines they have when completing their DUCs. Chesapeake is more consistent in completing their inventory usually before 300 days but BHP is more sporadic. Taking this information you can then be able to calculate the average days an operator keeps wells uncompleted. This also gives a good indication of the operators drilling program and if they are drilling to complete or to just hold acreage.