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US Shale Drilling Accelerates, Offsets Loss of DUCs, and Grows Production

ESAI Energy’s recent North America Watch reports that US shale operators, especially in the Permian Basin, are ramping up drilling activity as the inventory of drilled-but-uncompleted (DUC) wells dries up. Supply chain bottlenecks and rising costs will continue to drag on growth, but overall, ESAI Energy sees enough of an acceleration in drilling for US shale production to end 2022 roughly 830,000 b/d higher than where it started the year.

ESAI Energy’s analysis shows that after reaching a peak in June 2020, the backlog in DUCs has fallen by over 60 percent as producers completed more wells while keeping drilling subdued to preserve cash. The company estimates that viable DUCs will likely be depleted by year-end, leaving many producers with no choice but to accelerate drilling to keep production levels up. ESAI Energy reports that the addition of frac crews will lead to strong production growth from the Permian Basin into 2023 as the rate of new wells spud has recently begun to rise more than twice as fast as the number of well completions. However, completion rates in other basins may indeed start to slow due to a lack of DUCs unless new rigs are deployed more rapidly, keeping growth in those basins more muted.

Elisabeth Murphy, ESAI Energy’s upstream analyst for North America points out that “oil prices north of $100 per barrel have incentivized more rigs, especially from private companies, and the diminishing inventory of DUCs means more drilling is necessary just to maintain levels of production”.

Ms. Murphy confirms that a lack of DUC inventory will add downside risk to growth in 2023 if supply chain problems increase, impacting rig and equipment deployment, but that ESAI Energy currently sees another strong year of production growth from the Permian Basin in 2023 especially if producers increase drilling budgets for the new year.
Source: ESAI Energy

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