Within the next 18 months, roughly 250,000 barrels per day of oil could come into production as operators revisit their drilled, but uncompleted (DUC) wells.
Steady, if not painstakingly slow, increases in crude prices are making the wells more profitable to complete. At the mid-$40s level, these wells could turn a 10 percent profit, Ryan Duman, an analyst at Wood Mackenzie said, but in the $50s, they become even more attractive.
“Our view is based on continuing commodity price improvement,” Duman said. “We see 2017 gas prices continuing to improve and crude prices largely remaining above $50 for 2017, which, based on DUC economics, would indicate that most every DUC that’s currently out there, is well within the money.”
That gives operators a cheaper opportunity to respond to higher commodity prices. The cost of constructing a DUC is roughly 70 percent of the total cost of a new well. To bring a DUC into production, there’s only the 30 percent of the cost left to fund as opposed to 100 percent of a new-build well.
Duman said the relative stability of $50 oil will provide an extra level of confidence needed for companies to put projects into motion.
“It’s the price point, in our minds, where a lot of activity begins to come back,” he said.
Whether that could mean a ramp up in hiring is unclear, Duman said. In the short term, companies will likely work with the frack crews that already have on the payroll. But in time, especially as companies pursue new drilling opportunities in places like West Texas, some hiring is feasible.
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