PITTSBURGH—The following is a compilation of some of the most important points from speakers at this year’s DUG East Conference & Exhibition, held June 22-23.

  1. We might not be out of the woods yet on oil. The favorable supply/demand trend line, which many are pointing to as evidence of a rebalancing market, could reflect temporary and seasonal market idiosyncrasies. As hopeful as the industry is on oil price, the market, at $50, may have gone too high, too fast for underlying fundamentals.
  2. Is $52 a more reasonable average for 2017? And is the new normal in 2018 a price somewhere in the low $60s? Fundamentals point in that direction.
  3. The long-beleaguered natural gas market could tighten in 2017. The ethane market is already tightening, part of a trend that bodes well for liquids. If the three ethane cracker projects being discussed in Appalachia come to fruition, they will create demand for 375,000 barrels per day of ethane.
  4. DUCs peaked at 4,600. These are defined as wells drilled but uncompleted over 180 days. The industry will run through the DUC inventory this year. The current level is down to 3,100, including an estimated 870 in the Northeast. That inventory is falling fast.
  5. Eliminating DUCs will not stress the industry oil services sector. It takes 75 days to assemble and train a frack crew, and the well stimulation sector can easily increase capacity short-term by moving to 24-hour work and weekend work. DUCscould turn out to be a non-issue by year-end.
  6. This year's low rig counts won't fully be reflected on the production side until 2017, because there is an 18-month lag in response between rig count and production.
  7. Very significant impact on both well economics and production volume can be made with small adjustments in a company's field operations.
  8. Lateral length boosts economics to core-like levels—as long as you begin with good acreage. As impressive as an 18,550-ft lateral is in execution, it is not the limit on what can be done with current technology. It is possible to push laterals out to 21,000 ft or 22,000 ft.
  9. The driver for longer laterals is actually lower cost per foot. That was the rationale behind Eclipse Resources Corp.’s (NYSE: ECR) record-setting 18,500-ft lateral in Ohio.
  10. There are gains to be made in how efficiently the industry operates with the resources at hand. One of the biggest opportunities for operators could be their ability to narrow the gap between the best wells and the worst wells. We are in the early innings of improving capital efficiency.
  11. If companies do things the right way and take a long view, they will be the lowest-cost—and most capital efficient—producers.
  12. The core of the Marcellus could extend to the counties north of Pittsburgh. This is also true for the Upper Devonian.
  13. The industry has transitioned from speed to efficiency. During the high-price era, companies ran as fast as they could acquiring acreage, getting wells drilled and bringing production online. Now that high prices have passed, the focus is on efficiency and lower costs, usually via longer laterals and attempts to reduce the cost per foot.
  14. Most deal flow in the A&D market has been about consolidation. Deals are evaluated on the current forward curve and buyers are using near-term oil prices to define pricing.
  15. However, those buyers who have won bids have done so on pricing that reflects expectation of $60 oil in the future.
  16. Private equity has been the main purchaser of properties recently with a focus on consolidation vs. new entry, usually among local players familiar with the market. Liquidity issues among sellers will be a major driver in deal flow going forward.
  17. This is the first downcycle in the unconventional era. It traces its roots to higher debt levels, as major debt-financed investment was allocated to acquiring acreage. That acreage is not producing revenue. Consequently, the market is working through the aftermath of actions following marginal management teams acquiring bad acreage and financing the purchases through debt.
  18. Changes in federal banking rules regarding the recognition of off-balance sheet debt will force a number of energy loans into the criticized “classified” category, which will restrict capital availability for energy at regional banks.
  19. In the upcoming vacuum on capital availability, private equity will be a main source of funding. However, drillcos—industry carry deals—are becoming more important as a means of getting acreage drilled.
  20. It is possible to reach a steady state in industry water use for energy development, but it will require more consistent and more concerted testing efforts up front. There are no technological or economic barriers to alleviating pressure on water resources from energy production.

Check back for additional coverage and analysis from DUG East on this site in the coming days.

Richard Mason can be reached at rmason@hartenergy.com.