Production in the Northeast has been able to continue to grow despite the downturn in Marcellus drilling activity. Growth continued in part due to a large excess backlog of drilled, uncompleted wells (DUCs) and completed wells on backlog (COBs). However, we highlighted the fact that inventory is winding down, with only enough inventory left to hold production flat by early next year at current activity levels. When and how much will producers need to ramp up activity in the region to meet new pipeline commitments? To address these questions, we have looked at rig drilling efficiency and, on a well level, the spud-to-sales time.
The number of rigs in the Marcellus and Utica has stabilized to around 35 over the past few months. In recent earnings releases, several operators have indicated they are adding rigs back to the region, such as Southwestern (NYSE: SWN), Eclipse (NYSE: ECR) and Gulfport (NASDAQ: GPOR). Improved drilling times and efficiency gains also continue to be noted, including by Antero (NYSE: AR) and Rice (NYSE: RICE). Looking at total wells drilled in the Marcellus and Utica versus the rig count highlights gradual efficiency gains over the past few years, which has averaged 1.7 wells drilled per rig per month year-to-date. This, coupled with the number of wells drilled to meet production targets, helps give an indication of overall rig activity required.
However, drilling is only one step in the process of turning a well to sale. Given the nature of pad drilling where operators typically drill all the wells on a pad and then go back to complete them, there is a natural lag in the time from drilling to completion. On top of that, infrastructure constraints in the region and weakness in pricing allowed an inventory of completed wells to build (COBs).
Looking at the graphic below, the average spud-to sale-time was about six months across the Marcellus and Utica in 2015, with an average of 4 months as a DUC, and 2 months as a COB. This has decreased from about 9 months total over the past few years, and has been relatively consistent between the dry Marcellus in Northeast Pennsylvania and the wet Marcellus and Utica in Southwest Pennsylvania, Ohio and West Virginia. Ultimately, this provides an indication that in today’s infrastructure environment in the Northeast, it likely takes at least 6 months to drill a well and get its first molecules to market. So for any wells drilled today, we likely won’t see an impact to production from that well until early next year.
With about 5 bcf/d of new pipeline takeaway capacity slated to come online throughout 2017, and excess well backlog dwindling, we expect producers will need to begin ramping up Marcellus drilling or Utica drilling within the next few months to meet their pipeline obligations. The following questions naturally follow: how much activity is needed in each region of the Marcellus and Utica, and which operators are best positioned to ramp up? For answers to these questions and a granular analysis of Marcellus drilling activity see our upcoming issue of the Northeast Gas Quarterly.