During the height of the downturn in May, rigs and completions crews dwindled quickly – completion crews dropped over 85% while the rig count dropped 60% in just three months. That disconnect helped create a large accumulation of drilled uncompleted (DUC) wells as E&Ps waited for higher prices before completing wells and turning them sales. Operator opinions differ on the required price deck to initiate a DUC drawdown, with some alluding to $50/bbl WTI while others were confident at $30/bbl. Enverus analyzed 50 companies and calculated 2019 quarter-cycle breakevens (which exclude drilling costs) to gauge the price required for each operator to choose drawing down DUCs (Figure 1).
Diamondback Energy’s (FANG) average wells break even on completing and turning a DUC well to sales at a WTI price just over $30/bbl (15:1 WTI:HH), much improved from $40/bbl when including the cost of drilling. Using new rig and frac crew tracking technology in Prism, Enverus calculated 175 DUC wells for FANG, while the company has forecast 110-140 DUCs by year-end 2020. Considering breakevens and guidance, we expect to see FANG and others capitalize on the sunk cost of DUCs and continue drawdown programs for the balance of the year and into 2021.
FIGURE 1 | 2019 Average Quarter-Cycle and Half-Cycle Breakevens by Operator (15:1 WTI:HH)
Source | Enverus
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