We don’t think there are any DUCs (drilled but uncompleted wells).

Are there wells that have been drilled and are awaiting a frac job?  Yes, but no more than would be typical with 1,000 rigs running. If you are banking on a coming DUC-fired completion boom (especially in the Permian), that bank is closed.  In fact, there was never a DUC bank.

We too got caught up in the DUC hype, believing frac jobs were being withheld while Permian pipelines were being built – heck, we made a YouTube show about it – but here’s the nagging problem:  We interview a lot of oil company people and nobody ever admitted to purposefully delaying well completion activity. In fact, oil company completion engineers look at you funny when you ask what their DUC count might be.  “We don’t have any,” is always the answer.

Consider the following chart from the Permian Basin.  This is our firm’s current estimate of new horizontal wells drilled each quarter and wells frac’d each quarter

Here’s the trend we see:  The very same economics that cause a new well to be drilled cause each of those wells to be completed as soon as possible.  In this era of “capital discipline”, what oil company management team would admit to their shareholders that they took a bunch of capital, drilled holes in the ground at $3M per and then left them without completing them?  

It looks like in almost every case oil companies decided to sell oil today at a small discount rather than wait 6 months and sell it at a possibly higher price once the pipelines get built.  Who wants to take the risk that oil prices will be higher in 6 months?

The oil markets are assuming that the Permian has a big spigot it can open, a big spigot tied to DUCs.  This does not exist. The oil markets are also assuming that Permian oil wells are getting better and bigger each year.  This also does not exist, because it takes more feet of hole and more sand and more water to get the same amount of oil out with each passing year. The oil markets price WTI at a modest $55 because traders think there is a lot more available on demand.  Not without a massive incremental investment increase!

When inventories run low, prices move upward.  In oil markets, the DUC inventory is about zero.