They are called DUCs or “drilled but uncompleted” wells. Oil and gas companies have drilled thousands of DUCs and left them untapped, waiting for better oil prices.
Guess what? Better oil prices are coming soon. When will producers start exploiting these wells?
DUCs are not new. This many DUCs are. The backlog of uncompleted wells has grown significantly over the past couple of years. Companies like Continental Resources Inc. (NYSE:CLRB) and EOG Resources Inc. (NYSE:EOGC) are among the main culprits, but there are others.
Federal estimates indicate the number of DUCs was somewhere around 5,069 in September. The actual number is hard to pin down due to different methodologies, assumptions and available data.
Why DUCs Matter
Since the wells have been drilled, bringing the oil to market is significantly cheaper than starting from scratch. From a pricing standpoint, when oil hits roughly $50 to $55 per barrel, companies can generate A 10% return in the Bakken with a “start from scratch” well, according to Ryan Duman, a senior analyst at energy consulting firm Wood Mackenzie.
For DUCs the number is much lower at about $40 per barrel. This is because the costs of drilling have already been baked in. Duman said he expects to see companies completing many of the delayed wells in the next 18 months.
Companies reporting soon include ConocoPhillips (NYSE:COPC), Antero Resources Corp. (NYSE:ARC) and Cabot Oil & Gas Corp. (NYSE:COGC). Previously mentioned Continental Resources reports Nov. 2, and EOG soon after.
It is estimated more than 250,000 barrels and 4 billion cubic feet of additional daily oil and gas could result from more than 2,000 DUCs in the lower 48 states. Most experts believe DUCs will be the first option for producers eager to maximize profit as soon as prices stabilize.
The Role Of Bankruptcy
In addition, as higher oil prices become a reality, companies about to emerge from bankruptcy could see opportunity as a result of their new status as debt free entities. SandRidge Inc. (:SDN/A) is one example of a company that emerged from bankruptcy recently. By electing Chapter 11 bankruptcy, SandRidge was able to exchange debt for new stock, wiping out the debt and with it the value of old shareholders’ stock.
There have been more than 100 bankruptcies in the oil and gas industry over the past two years. Analysts and experts expect more of these companies to emerge from bankruptcy like Sandridge. If they’ve continued operating and come out debt free, there will be a lot of money to be made in the new stock.
Companies To Watch
In oil and gas, Midstates Petroleum Co. Inc. filed for bankruptcy April 30. Others that have undergone the process are now seeking to or have recently emerged just as oil prices began to rise.
They include Halcón Resources Corp., the afore-mentioned SandRidge, Goodrich Petroleum Corp. and Penn Virginia Corp.