A quick oil & gas lesson, for new MDN readers. A DUC is a Drilled but UnCompleted well. Many times drillers will drill the initial hole in the ground, but then not “complete” (or frack) the well. Why do that? For a variety of reasons. The biggest reason is usually because the commodity price of gas (or oil, depending on the well) is not favorable. Rather than lose the lease a company paid good money for, they will begin the process by drilling, and then leaving, the well–only to return later to complete it when prices go up again. Keeping an eye on DUC inventories tells you a lot about the economics of a commodity–what drillers believe will happen in the near-term with the price for that commodity. Once upon a time both the oil and natural gas industries tracked together. When there was more drilling (and production) for oil, there was also more drilling and production for gas. The prices for both oil and gas tracked along the same path. What is now obvious–has been obvious for some time–is that “tracking together” is no longer the case. Each commodity, oil and gas, now have their own economics, driven by different factors. What makes it evident that oil and gas economics have now separated are DUCs. Right now oil drillers are drilling but not completing wells like crazy, piling up a high DUC inventory, saving wells for later, when prices improve. However, DUCs for natural gas are going down, especially in the Marcellus/Utica region, which means drillers believe prices will soon go higher for natgas. The fewer DUCs there are, the more new drilling there will be…
A quick oil & gas lesson, for new MDN readers. A DUC is a Drilled but UnCompleted well. Many times drillers will drill the initial hole in the ground, but then not “complete” (or frack) the well. Why do that? For a variety of reasons. The biggest reason is usually because the commodity price of gas (or oil, depending on the well) is not favorable. Rather than lose the lease a company paid good money for, they will begin the process by drilling, and then leaving, the well–only to return later to complete it when prices go up again. Keeping an eye on DUC inventories tells you a lot about the economics of a commodity–what drillers believe will happen in the near-term with the price for that commodity. Once upon a time both the oil and natural gas industries tracked together. When there was more drilling (and production) for oil, there was also more drilling and production for gas. The prices for both oil and gas tracked along the same path. What is now obvious–has been obvious for some time–is that “tracking together” is no longer the case. Each commodity, oil and gas, now have their own economics, driven by different factors. What makes it evident that oil and gas economics have now separated are DUCs. Right now oil drillers are drilling but not completing wells like crazy, piling up a high DUC inventory, saving wells for later, when prices improve. However, DUCs for natural gas are going down, especially in the Marcellus/Utica region, which means drillers believe prices will soon go higher for natgas. The fewer DUCs there are, the more new drilling there will be…