Playbooks Supplements

Unconventional Yearbook 2018

Issue link:

Contents of this Issue


Page 5 of 107

4 | January 2018 | 2018 UNCONVENTIONAL YEARBOOK | INTRODUCTION natural gas prices. The Haynesville, another major shale gas resource, stands ready to inject substan- tial quantities of gas at competitive prices should consumption outstrip our current expectations. Gazers of short-term oil and gas historically set their sights on permits, well spuds and rig counts. While these data remain important inputs to fore- casting oil and gas production, the manner and use of early data types is changing due to differences in processes employed in shale. A shining example revolves around the whole discussion on drilled but uncompleted wells or DUCs. Before opining on DUCs, a review of drilling rigs seems in order. After all, rig activity is still the most crucial of input variables available for prog- nosticating on future production in shale. It comes as no surprise that the Permian Basin is expected to attract the lion's share of activity, followed by the Eagle Ford. Relatively stable rig counts are pro- jected in the other major shale oil resource areas. It is important to keep in mind that while rig counts and activity are projected to remain robust, the high number of "young" wells added in 2017 translates to a steeper base decline in 2018. A steeper base decline makes it more difficult to grow production as a greater share of "new source" production, which is production from wells added in the current year, replenishes production declines in the base wells. Base wells are wells that began their productive life prior to the current year. In recent years, much has been made about effi- ciencies in drilling and completions. Truth be said, it is far easier to lay claim to consistently improv- ing cycle times when working with the best crews and the best equipment. Unfortunately, not all crews nor all equipment can be best at all times. As increasing numbers of crews were called back and assigned to second-tier equipment, cycle times showed some slippage. Stratas does not anticipate large-scale degradation in cycle times, however; the pace of improvements witnessed in recent years is not expected to continue. DUCs have been another topic du jour. The evolution of DUCs on the scale seen today is a product of pad drilling, batch processes to mini- mize damage and disruptions, and infrastructure planning. Observations of data reveal two import- ant insights. First, the number of "steady state" DUCs moves in tandem with rig counts. As rig counts climb, the natural number of DUCs that are a normal and constant part of the accounting also climbs. We can see clear evidence of this in the Permian. In tracking DUCs, 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 first-in, first-out inventory model. Observations show that most wells are completed in a range of 120 to 210 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. n Editor's Note: For a detailed production forecast please see the article beginning on page 96. HIGHER OIL PRICES COUPLED WITH AN EXTENSION OF OPEC-PLUS PRODUCTION CUTS through at least mid- 2018 support activity in the best areas of all major U.S. shales through the end of 2018.

Articles in this issue

Links on this page

Archives of this issue

view archives of Playbooks Supplements - Unconventional Yearbook 2018