Playbooks Supplements

Unconventional Yearbook 2018

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104 | January 2018 | 2018 UNCONVENTIONAL YEARBOOK | PRODUCTION FORECAST One aspect Stratas does expect to change is cost. Oilfi eld service companies appear to be gain- ing some pricing power with higher utilization rates, especially for the most in-demand services in prime locations. Further fueling these increases are demands for select consumables and services, par- ticularly those used in completions. Consequently, Stratas is modeling double-digit cost increases on average for U.S. shales in 2018. Drilled but uncompleted wells (DUCs) remain an important but secondary consideration for 2018. The evolution of DUCs on the scale seen today is a byproduct of pad drilling, batch pro- cesses to minimize damage and disruptions, and infrastructure planning. Observations of data reveal two important insights. First, the number of "steady-state" DUCs moves in tandem with rig counts. Steady state refers to DUCs that are a result of normal business practices. A good rule-of-thumb for estimating the steady- state DUC count is: Steady-state DUCs = Rigs * wells per month per rig * 3 months As rig counts climb, the steady-state DUC count also climbs. Clear evidence of this can be found in the Permian today. In tracking DUCs and their potential impact on production, Stratas advises in netting out these steady-state DUCs from the gross number. This ensures proper timing of production additions over the forecast horizon. It also ensures proper timing of well retirements in the long term. The second insight is that DUC inventories typically adhere to a fi rst-in, fi rst-out inventory model. Obser- vations show that most wells are completed in a range of 120 to 220 days after drilling. As one might expect, precision in forecasting, especially in oil and gas, is enhanced when considering such details. Shifting our gaze to the longer horizon, range- bound prices through the next several years will continue to support growing production of both commodities from shale while containing the industry from falling victim to the side effects from over-exuberant development. OPEC-plus production curtailments will end. The timing is, of course, unknown. However, it is important to recognize that shale has proven its ability to com- pete effectively in today's market, and it is here to stay for the long term. Given the allocation of eco- nomic shale and tight resources in North Amer- ica and ongoing efforts by industry to enhance competence in developing these resources, Stra- tas projects growing oil and gas production from shale and other tight rock formations through most, if not all, of the forecast period. ■ - 50 100 150 200 250 300 350 400 450 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20 Jan-21 Jul-21 Jan-22 Jul-22 Jan-23 Jul-23 Jan-24 Jul-24 Jan-25 Jul-25 Jan-26 Jul-26 Jan-27 Jul-27 Jan-28 Jul-28 Jan-29 Jul-29 Jan-30 Jul-30 Rigs Bakken Eagle Ford Permian Rockies Midcontinent Appalachia Other Shale and Tight Resource Rig Activity

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