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US unconventional oil output estimated to jump to 7.178 million b/d in June

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US unconventional oil output estimated to jump to 7.178 million b/d in June

Houston — The US Energy Information Administration estimates US unconventional oiloutput will increase by a record 144,000 b/d in June.

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In its Drilling Productivity Report released Monday, the EIA forecastsproduction to increase to 7.178 million b/d in the biggest month-on-monthincrease in the four-and-a-half years since the agency has published thereport.

The Permian Basin of West Texas and New Mexico is slated for the largestincrease by far at 78,000 b/d, for a total 3.277 million b/d of oiloutput, EIA said.

Trailing the Permian by less than half is the Eagle Ford Shale in SouthTexas at 33,000 b/d of projected oil production growth next month, for atotal 1.387 million b/d.

Following the two big plays is the Bakken Shale of North Dakota andMontana, which is expected to show 20,000 b/d higher oil output in June,for a total 1.238 million b/d.

The Permian is by far the largest oil play in the US and is also the mostactive drilling basin with 463 rigs as of Friday, out of a total 844 oilrigs working last week.

In addition, the number of drilled but uncompleted wells in USunconventional plays appears to be slowing down. Those so-called DUCsrose by 55 to 7,677 in April, half the increase of 110 seen in March.

Domestic DUCs have risen gradually, but steadily, by more than 2,100wells since November 2016 when they numbered 5,495.

Permian DUCs increased by 111 in April to 3,086 against a jump of 122 inMarch.

One reason why there is a build of DUCs is timing, James Williams,president of WTRG Economics, said. Operators drill more wells per pad,all in a batch, and similarly batch-complete them. That delayscompletions because none will occur until all wells are drilled.

"Generally, we're completing a lot more wells than we did six to eightmonths ago relative to the number of wells drilled," Williams said.

Williams, an economist, also noted EIA data shows the ratio of wellcompletions to wells drilled in any given month has risen. In July it was68% and currently it is about 80%. That lowers the DUC count even thoughit continues to rise because of the increasing number of wells drilled ascompanies execute their more expanded programs this year.

Upstream producers have typically always had some DUCs in theirinventories -- normally because they simply did not have time to completethem. But since the industry downturn that began in late 2014, manyoperators deliberately drilled but did not complete wells for otherreasons.

Initially, it was due to low oil prices -- producers did not want toproduce their best wells into a market where prices were low -- but morerecently, the DUC build is due to lack of sufficient completion crewsand, potentially, oil takeaway capacity. Operators are ramping updrilling in the Permian, especially, and there is just not enoughinfrastructure to carry it to market.

Even though oilfield costs are starting to rise, drilling costs had beenlow enough that it was cost-effective to drill when prices for rigs,services and equipment were cheap.

During the downturn of 2015-2016, oilfield services companies gaveproducers price breaks to allow them to continue operating. But now costsare rising -- many say at least 10% to 15% this year -- with producersoffsetting rising costs through efficiencies. US drilled but uncompleted wells inventory by basin (January-April,2018): Anadarko, 965, 967, 967, 960; Appalachia, 812, 801, 784, 764; Bakken,722, 720, 719, 719; Eagle Ford, 1,431, 1,455, 1,476, 1,494; Haynesville, 171,171, 169, 166; Niobrara, 583, 566, 532, 488; Permian, 2,723, 2,853, 2,975,3,086; Total, 7,407, 7,533, 7,622, 7,677. Source: US EIA.

--Starr Spencer, starr.spencer@spglobal.com

--Edited by Jim Levesque, newsdesk@spglobal.com