Enverus Blog

Insights across the energy value chain

A big conversation piece around the oil and gas round tables is the large and vast inventory of drilled and uncompleted wells.

Controversy is not far behind this table talk as nearly all states or leasing agreements have requirements on when new wells have to be brought online after initial spud. In basins where economics are not favorable such as North Dakota the state has issued allowances of an extra year to defer the completion of these DUCs. There has been some talk of whether a DUC is considered a PUD or PDNP, and if it is PDNP how to discount the value to determine how much to lend against those assets. Landowners are also at a loss in some cases as money they thought they would be receiving after their division order came in has been put on hold indefinitely. Some operators will have to make the choice to complete the well and lose reserves or face a potential lawsuit from landowners and the state for not completing wells within the specified time.

DUCS fig 1 drilled and uncompleted wells

In a previous life I used these DUCs in a search and destroy style mission; find operators with large capital expenditures requirements brought on by these DUCs but low budgets or high debt. These DUCs represented their prior success, when pricing was favorable, which was used against them to secure working interest (WI) and a foothold in future projects. Sifting through the immense data files and access databases to create these profiles was time-consuming and could lead to lackluster results if the database was not kept current. Advising companies on similar strategies now, using DrillingInfo’s Rigs Analytic platform makes this task and many others fast an easy, let’s dive in.

DUC’s and wells that have been shut-in for at least 6 months allow capital providers or analysts to determine where a company stands on future drilling. If you look at a company’s 10’k report and determine that they are only going to bring online 20 wells in 2016 in the Bakken but have 18 DUCs that will hit their 2-year expiration limit in the same year it can be concluded that they will only be drilling 2 wells during 2016. Since we are able to determine the location of these DUCs we can also know their approximate production based on offsets allowing us to make a depiction of what the production should be from these new wells. We can also determine which month different wells have to be completed to comply with that states rules.

DUCS fig 2 drilled and uncompleted wells

On the other hand, if we are looking at an investor presentation and know that a company has more DUCs in inventory than their CAPEX allows for, time to go hunting. Using this data along with Drillinginfo’s leasing analytics we can determine if surrounding acreage is expiring or who is the lessor which allows us to begin to make a pitch of funding both wells and leasing activity. This is significant because the difference with these DUCs is that half of their expected costs are already sunk; we are able to get in at a lower price point than if the wells were newly drilled as a company has to make a decision to take the capital or deal with a potential lawsuit from the state or landowners by not completing the well within the approved 2 year window.

This is just one example of how the industry can use the data available to make decisions. There is a lot more to an investment decision that provided in this article but the ability to make these types of pitches to investors and companies will help a new wave of funding for companies with not enough capital to move forward. It can help jumpstart or keep alive certain entities that are all but dead and allow for companies to hold on to non-core assets that are valuable at a higher price environment. For those with the capital to spend, happy hunting.

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Phillip Dunning

Prior to joining the company in early 2016, Phillip worked as an asset development engineer in the Appalachian basin and later at an upstream Private Equity firm focusing on equity investments in unconventional plays and royalty/mineral acquisitions. Phillip has advised companies on deploying capital, raising money, and A&D and has helped startup numerous O&G companies since 2013. Phillip is an Engineer by education with a B.S in Engineering from The Ohio State University and a M.S in Petroleum Engineering from The University of Louisiana.

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