Exploding DUCs? Identifying periods of mild explosivity in the time series behavior of drilled but uncompleted wells

Abstract

Recent attention has turned to drilled but uncompleted wells (DUCs) that exploration and production (E&P) companies may manage in order to address market uncertainties. DUCs act as potential supply that bridges the gap when supply and demand are unequal and can play a key role in the operations strategies of producers. This study provides evidence of mildly explosive behavior in the time series of DUCs by applying the Right-Tailed Augmented Dickey Fuller test of Phillips, Shi, and Yu (2015) (PSY). The PSY method tests for mildly explosive behavior of a time series defined by when the volume of DUCs move beyond what would be expected given the fundamental market conditions. The sample spans from December 2013 until May 2020 and includes the major oil producing regions of the United States. The analysis date stamps periods of mild explosivity and matches surges in DUCs with major contemporaneous events including the June 2014 precipitous drop in oil price, midstream bottlenecks and resource constraints, as well as the COVID-related fall in demand for oil. The findings are discussed in the context of exploration and production firms and the use of DUCs as a tool for understanding value and optimization of production over time.