Synopsis

Workover volumes in the Eagle Ford are stabilizing, though declines still are evident in some areas of the play. Contractors believe oil prices will stay range bound in 2015 and most oil and gas companies will ride out the year in cost cutting mode without any significant increase in activity. Routine maintenance work represented 84% of job mix in this survey, the highest share to date among all regions as operators do only what is necessary in the current price environment. Well servicing hourly rates were down 3% on average versus the last Eagle Ford workover survey in February and appear to be stabilizing. Rates for coil tubing are off 50%, according to survey respondents, as the backlog of drilled but uncompleted wells exceeds 500 in the Eagle Ford. Watch for the next Eagle Ford workover report in September 2015.

Part I. – Survey Findings

Among Survey Participants:

  • Rig Demand Stabilizing
    [See Question 1 on Statistical Review]
    ​Five of the eight respondents said that rig demand had stabilized in the last three months, with three respondents saying that demand had continued to decline QTQ. This is a change from three months ago when seven of the eight respondents said that demand had declined QTQ.
    • Mid-Tier Operator: “I think we hit bottom a few months ago, but there are some areas that are still getting worse. And some are just not getting better.”
  • Number of Rigs Excessive
    [See Question 2 on Statistical Review]
    All of the respondents said that there continues to be an excessive amount of rigs in the Eagle Ford area, as operators are seeking ways to control cost and are only doing what work is necessary.
    • Mid-Tier Well Service Manager: “I am seeing that it could go up or down. It's hard to say and a lot of smart people out here are seeing it both ways. We have picked up in the last couple of weeks and it is not due to rain.”
  • Well Service Companies Focusing on Maintenance
    [See Question 3 on Statistical Review]
    ​Among all respondents, maintenance on average accounts for 84% of work, which is a significant increase as operators focus on only what is necessary in the Eagle Ford area. Completions account for 10%, plug and abandonment (P&A) work accounts for 1% and workover accounts for 5% of all work performed.
    • Mid-Tier Well Service Manager: “There has never been any margin in the well service business. We haven’t made any money since 2008. It’s more about keeping your cash flow and at current rates you have to ask yourself if you are better off keeping your inventory maintained or putting it to work. Most of the work out here is maintenance, but there is a backlog built of wells that will need to be completed.”

Maintenance

Completion

P&A

Workover

100%

0%

0%

0%

100%

0%

0%

0%

75%

15%

5%

5%

70%

10%

5%

15%

70%

15%

0%

15%

85%

15%

0%

0%

85%

15%

0%

0%

90%

10%

0%

0%

Average 84%

Average 10%

Average 1%

Average 5%

  • Workover Rigs Still in Majority
    [See Question 4 on Statistical Review]
    ​Six of the eight respondents said that they are using workover rigs versus coiled tubing units to do well service work in the Eagle Ford. Two said that they do use coiled tubing units and had increased their use because of lower costs.
    • Mid-Tier Operator: “There are 18 to 20 coiled tubing units that haven't moved in a month. There is too much completion work that is waiting to be done, but wells are being drilled and shut in. There are 500 wells shut down and still haven't fracked them yet, so a coiled tubing unit cannot go do its job.”
  • Hourly Rates Are Relatively Stable
    [See Question 5 on Statistical Review]
    ​The hourly rate for the popular sized 500 HP series is $400/hour on average, which reflects the discount contractors are giving in response to the lower oil prices. See Table I for Average Hourly Rates.
    • Mid-Tier Operator: “Workover rig rates have not dropped as dramatically as drilling rigs, but coiled tubing unit rates have dropped by 50%. I have had several coiled tubing companies coming through here looking for work and willing to offer most anything.”

Table I. – Average Rates for Certain Workover Rig Sizes in the Eagle Ford

Rig Size (HP)

Average Rate

500 HP Series

$400/hour

600 HP Series

$575/hour

  • Hourly Rates Down Low Single Digits
    [See Question 6 on Statistical Review]
    ​Hourly rates for well service rigs are down 3% on average, which represents a much lower decline than happened in March, when rig rates had dropped 18% QTQ.
    • Mid-Tier Operator: “For us, we haven't adjusted any plans from our January outlook, so we are still holding costs steady. We are not convinced that we have seen the bottom yet even though we are getting pretty close.”
  • Virtually No Competition
    [See Question 7 on Statistical Review]
    ​Competition has been non-existent as drilling is slowing down. All respondents said that they are not seeing new competition come into the Eagle Ford.
    • Mid-Tier Operator: “I don't think we will see anyone increase their activity even if the price goes up. I think oil will stay between $57 to $62 through the rest of the year because of the global supply.”
  • Maintain is the Key Strategy
    [See Question 8 on Statistical Review]
    ​Controlling costs and maintaining a steady workload was the common strategy for navigating the downturn. However, most respondents said that even if oil prices were to rise soon, they did not expect to the workload to change dramatically as companies were expect to ride out 2015 in cost-savings mode.
    • Mid-Tier Well Service Manager: “There are a lot of wells that have been drilled out there and are just waiting to be completed.”
  • Most Wells Are Completed
    [See Question 9 on Statistical Review]
    ​All of the operators said that they are completing the wells that they are drilling, while the three well service managers said that completions had dropped off and most of their work was in maintenance.
    • Mid-Tier Well Service Manager: “Production has only just started to decline and the inventory build has been frenetic. There is so much in storage that—even with production dropping—it will take a long time to have that drop. I think it will take 18 months to work through the surplus. If we start seeing inventories decrease and some light at the end of the tunnel, then there are 2,500 to 3,500 wells that are not completed that they could complete, which would mean 1.2 million barrels a day of production available turned around in 30 to 60 days, and then you start the inventory build and drive prices down again. Unless there is some change on the demand side or a ramp up in the economy, I don’t see much changing in the foreseeable future.”

End Survey Findings

Survey Demographics

H A R T E N E R G Y researchers completed interviews with eight industry participants in the workover/well service segment in the Eagle Ford area. Participants included five oil and gas operators and three managers with well service companies. Interviews were conducted during early June 2015.

Part II. – Statistical Review

Workover/Well Services – Eagle Ford

Total Respondents = 8

[Oil & Gas Operators = 5, Well Service Companies = 3]

1. Do you expect demand for workover rigs to grow, remain the same, or shrink in second-quarter 2015 compared to first quarter?
Remain the Same 5
Shrink: 3

2. Would you characterize the supply of rigs in your area as excessive, sufficient, or insufficient to meet the first-quarter 2015 demand?
Excessive: 8

3. Looking at your slate of well service work—on a percentage basis—how much of it is workover vs. routine maintenance vs. plug & abandonment (P&A) vs. completion work?

Maintenance

Completion

P&A

Workover

100%

0%

0%

0%

100%

0%

0%

0%

75%

15%

5%

5%

70%

10%

5%

15%

70%

15%

0%

15%

85%

15%

0%

0%

85%

15%

0%

0%

90%

10%

0%

0%

Average 84%

Average 10%

Average 1%

Average 5%

4. Which type of well service equipment is gaining share in completions—coiled tubing CT) units or workover (WO) rigs? What percentage of completion work is being done by coiled tubing units vs. workover rigs?
Workover rigs in use more than CT units 6
100% of work completed by workover rigs 5
100% of work completed by CT units 1
75% of work completed by CT units 1
Mix – of CT units and WO rigs 1

5. What size (horsepower) workover rigs do you own? What is a representative rate for this size workover rig in your area?
[Rates shown are an average rate among all respondents in the category.]

Rig Size (HP)

Average Rate

500 HP Series

$400/hour

600 HP Series

$575/hour

6. Do you expect workover rig hourly rates to increase, remain the same or decrease over the next three months?
Flat 0% 6
Down 10% 1
Down 15% 2
AVERAGE Down 3%

7. Have you noticed competitors from other regions entering your area? What has been the effect on your fleet's utilization and hourly rates?
No 8

8. What strategies are companies putting in place to cope with the low oil prices?
A lot of companies have pulled back 1
Well service focusing on maintenance 6
Will maintain this level even if oil prices increase 1

9. What are you seeing in terms of the number of wells being drilled but not completed?
Completing wells drilled 5
A backlog of wells are waiting to be completed 3

End Statistical Survey