Monday, March 21, 2016

Analysts Already Looking At Impact Of Completing DUCs -- March 21, 2016

It's time to close out the somewhat "tongue-in-cheek" poll in which we asked whether the Bakken was doomed forever, whether readers were concerned about whether operators in the Bakken would be able to ramp up if oil suddenly hit $100/bbl?
  • yes, the Bakken is doomed; it will never be able to ramp up again: 5%
  • no, I am not concerned; the Bakken will do just fine: 95%
Thank you. Thank you. Thank you. Some sanity.

The reason we can close out the poll because Reuters is now reporting that some operators are stealthily starting to frack those DUCs, bringing production back up. Reuters posted this six hours ago:
A dreaded scenario for U.S. oil bulls might just be becoming a reality.
Some U.S. shale oil producers, including Oasis Petroleum and Pioneer Natural Resources Co, are "activating" DUCs in a reversal in strategy that threatens to bring more crude to a saturated market and dampen any sustained rebound in prices.
But now, with crude futures hovering near multi-year lows and many doubting recent modest gains that brought oil prices near $40a barrel (CLc1) can hold, the backlog of DUCs is already shrinking in some areas.
Mostly in Texas:
In key shale areas such as Eagle Ford or Wolfcamp and Bone Spring in Texas such backlog has fallen by as much as a third over the past six months.
"If the number of DUCs brought online is surprising to the upside, that means U.S. production won't decline as quickly as people expect," said Michael Wittner, global head of oil research at Societe Generale. "More output is bearish.”
In the Wolfcamp, Bone Spring and Eagle Ford, the combined backlog of excessive wells remains around 600.
About 660 wells could be the equivalent of between 100,000 and 300,000 barrels per day of potential new supply.
For now, most of the wells are activated in Texas, where proximity to refiners allows producers to sell their crude closer to benchmark prices, and by well-hedged companies that have locked in higher prices.
Much more at the linked article. 

For the record, I'm not getting too excited about this -- it would take another 660 wells to be activated to add 100,000 to 300,000 bopd -- this is trivial in a global environment that is producing upwards of 96 million bopd (= 0.3%).

Iran coming back into the market is a much bigger issue.

Furthermore, to put the 300,000 bopd into perspective, remember the earlier article that the IEA cannot account for 800,000 bopd for the entire year of 2015?

I think these writers and analysts are getting ahead of their headlights. 

Do you want to know what will be a gazillion times more bearish and bring oil back to $20/bbl? If, on April 17th, Saudi Arabia announces no freeze, no cut, and instead announce they will increase output by another 2 million bopd to flood the market to drive marginal operators around the world out of business.

Now that would be bearish.

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