Let’s talk about DUCs: the slack in the system that hides some of the rig count drop. Did you know that in 2019 we are completing wells at a pace that is 11% faster than 2018 in spite of a 26% rig drop. And did you know that finally- industry is completing more wells than its drilling in every play! Add to that, Halliburton said they did 20% less stages in Q3 than Q2. What are we to make of this phenomenon.

1. Companies are completing wells because half cycle returns far exceed the returns on new wells and they help their balance sheet and reserve reports for YE (borrowing base redetermination).

2. Companies are “upspacing” by frac’ing less stages at wider stage spacing to lower costs and “just bring wells on”

3. This probably means Q4 will outperform my expectations in terms of production rate but ultimately means no one really believed their Gen 3.5.e.i completions were leading to better economics.

4. Instead of slowing completions in Q4, companies are continuing to drop rigs that won’t come back in H1 2020. That means we might hit 650 HZ rigs by Dec 31.

I can’t believe I’m about to say this.. but… I think we are very close to the bottoming out in activity that will set the pace for H1 2020 and let the next stage begin: balance sheet restoration.