US shale oil and gas producers are expected to ramp up drilling activity soon to prevent production from sagging. However, this means they would spend more capital which can unsettle investors. Company executives said investors would accept more drilling needed to offset natural production decline and output loss due to hurricanes and other disruptions.
Drilling represents about 30% of the total cost to start up a new well which could reach about $7 million. With oil at $70 a barrel, producers could set aside more cash for drilling and still manage to satisfy shareholders with dividend payouts, analysts said.
Data from the US Energy Information Administration, the number of drilled but uncompleted wells (DUCs) dropped to a four-year low of 5,957 in July, compared to a peak of 8,900 in 2019. Analysts said tapping these DUCs does not require a steep increase in capital spending. The EIA said that at the current rate, the number of DUCs would fall to zero in fewer than six months unless producers started drilling again.
