Low oil prices have pushed many American shale projects into the realm of unprofitability, but fracking firms haven’t been idle during this bearish time period. Many companies have chosen to drill but leave uncompleted shale wells (shortened in the industry to DUCs), creating a “fracklog” of potential output just waiting to be unleashed once prices rebound. The industry has had its own estimates for just how big this fracklog is, but now the U.S. Energy Information Administration (EIA) is providing official numbers. The EIA reports:
DUCs are wells that have been drilled by producers, but have not yet been made ready for production. The full completion process involves casing, cementing, perforating, hydraulic fracturing, and other procedures to make the well ready to begin producing oil or natural gas. Following the large decline in oil prices since mid-2014, new drilling and completion activity slowed, and the number of DUCs in oil-dominant regions increased. A high inventory of DUCs has implications for the size and timing of the domestic supply response to changes in oil prices, with or without significant changes in the number of active drilling rigs. […]
Current EIA estimates show DUC counts as of the end of August totaling 4,117 in the four oil-dominant regions (Bakken, Eagle Ford, Niobrara, and Permian) and 914 in the three natural gas-dominant regions (Haynesville, Marcellus, and Utica) that together account for nearly all U.S. tight oil and shale gas production. In the oil regions, the estimated DUC count increased during 2014 and 2015, but the count declined by about 400 over the past five months. The DUC count in the gas regions has generally declined since December 2013.
All told, American producers are sitting on more than 5,000 DUCs, which collectively represent a potential flood of new supplies of oil and gas should prices tick back upwards. As much as this is a signal of the strength of modern U.S. energy security, it’s also a nightmarish threat for the world’s petrostates, which are preparing to convene in Algiers in two weeks to attempt to hammer out an agreement to freeze their collective output at current levels to help combat the global oversupply.
If, somehow, delegates from Russia and OPEC’s members manage to put aside their misgivings and mistrust of one another long enough to ink a deal, and if their self-imposed upper limits on production are enough to boost the global oil market (two very big ifs), it will be American shale producers that benefit the most. Even at $60 per barrel we could see companies start to tap the fracklog in earnest, and in so doing start building up the global glut again, bringing prices right back down.
Petrostates can scheme all they want—our DUCs put a very real limit on their capabilities of affecting the market.