In the first half of 2015, there have been some pretty big changes to the oil market. WTI prices have come down from a peak of $107.26/Bbl in late June of 2014 to a 2015 low hovering around $42.38 at the time of publication today. The number of drilled but uncompleted wells has continued to rise as companies defer completions in hopes of price recovery, while the number of active rigs has continued to drop. However, the same rate of decline seen in rig counts has not been seen in wells drilled because this decline has been offset by sky-rocketing drilling efficiency and falling drilling and completion costs.
Eagle Ford rig counts have fallen by 55% since last October, while the number of wells drilled per month has only dropped 43%. Changing rig counts should be an indicator of future production but rapidly changing drill times combined with producers optimizing completion designs in the new service cost era has resulted in additional productivity gains.
Initial production rates from horizontal oil wells in the Eagle Ford have been increasing in 2015. Year to date data for the Eagle Ford has shown IP rates have increased by nearly 25% over 2014 results.
The interesting piece here is what this means for the current DUC (Drilled but Uncompleted) situation in the Eagle Ford. The below graphic shows the current BTU Analytics’ estimate for the number of DUC’s in the Eagle Ford, which comes in at just about 1,800 to date. While the number of wells being drilled in the Eagle Ford has declined sharply over the last 6 months, as shown in the first graphic, we are also seeing a decrease in the number of wells that are being completed, from both the newly drilled wells, as well as from the current well backlog. Producers have been building up that backlog of wells in order to respond quickly to price increases and conserve capital.
The number of DUC’s is expected to come back down to a normal working inventory number over the next few years. However, prices will have an effect on how quickly that inventory comes down. Some producers, such as Chesapeake (CHK), have stated in their 2Q15 reports that they are planning to reduce their backlog of wells (CHK plans to go from 151 to 96 by the end of the year). Others, such as EOG Resources (EOG), are planning to defer completions into early 2016, in the hopes that prices will rebound. EOG originally planned to work down their inventory starting in 3Q15, but with the decline in crude oil prices, has announced updated plans to push that to early 2016.
The below chart shows how some of the more active operators in the Eagle Ford have changed their drilling activities from late 2014, as prices were crashing, to July 2015. Almost every company has decreased the number of wells they have drilled since then, which is one factor leading to the recent decline in DUC’s. With operators drilling less, and production not declining quickly, this means operators are completing more of their DUC’s.
As previously stated, the Eagle Ford is following a lot of the same trends that are happening everywhere else. The decrease in drilling activity combined with the increase in IP rates in the Eagle Ford are driving factors as to why BTU Analytics is forecasting Eagle Ford oil production to continue to increase through 2020. One of the big questions still surrounding the Eagle Ford is how that backlog of wells will change in the coming months. Do producers continue to drill (with decreased drilling costs and increased efficiencies) and defer completions, in hopes that prices begin to rebound by the end of the year? Or do they start to work off the large backlog that exists in the play? To get more insight into questions like these, click here to request a free copy of of BTU Analytics’ monthly Upstream Outlook.