Synopsis

Routine maintenance now accounts for more than two-thirds of job share for Appalachian Basin well service contractors as operators reduce activity to only do work that is necessary to sustain production. The change in job mix compares to the February Heard in the Field report when contractors reported maintenance represented less than one third of all jobs. With a region-wide excess of rigs, pricing dropped 15% this quarter, a slightly less severe rate of decline than the first quarter, partly because there is little demand for services. Pricing for the benchmark 500 series well service rig averaged $310 per hour, though the hourly rate includes more items that used to be priced separately. Watch for the next Appalachian update in August 2015.

Part I. – Survey Findings

Among Survey Participants:

  • Rig Demand Down QTQ
    [See Question 1 on Statistical Review]
    All respondents said that rig demand continued to slow QTQ as oil prices then gas prices continued to weaken. Most of the well service companies are seeing more maintenance jobs than other standard workover service as drilling has slowed.
    • Top-Tier Operator: “Work is slowing down especially as contracts are coming to an end and aren't getting picked back up.”
  • Number of Rigs Excessive
    [See Question 2 on Statistical Review]
    ​All of the respondents said that there is now an excessive amount of rigs in the Marcellus Shale area, as operators are seeking ways to control cost and are only doing what work is necessary.
    • Top-Tier Well Service Manager: “Work has really slowed down around here. We thought we were going to have to shut down our swabbing unit and lay-off everyone because we hadn't gotten any work for three months and then we picked up a little bit of work, but that has been up and down.”
  • Well Service Companies Focusing on Maintenance
    [See Question 3 on Statistical Review]
    ​Among all respondents, maintenance on average accounts for 68% of work, which is a significant increase as operators focus on only what is necessary in the Marcellus Shale area. Completions account for 19%, plug and abandonment (P&A) work accounts for 11% and workover accounts for 2% of all work performed.
    • Mid-Tier Well Service Manager: “We are focusing on maintenance work. Before we were doing mostly workover and we are maintaining.”

Maintenance

Completion

P&A

Workover

90%

10%

0%

0%

80%

20%

0%

0%

90%

10%

0%

0%

90%

10%

0%

0%

10%

70%

10%

10%

20%

0%

80%

0%

80%

10%

0%

10%

80%

20%

0%

0%

Average 68%

Average 19%

Average 11%

Average 2%

  • Workover Rigs Populate Marcellus
    [See Question 4 on Statistical Review]
    ​None of the respondents are using coiled tubing rigs, instead all said they use workover rigs 100% of the time.
    • Mid-Tier Well Service Manager: “There are no coiled tubing rigs out here, we are just using workover rigs.”
  • Hourly Rates Under Pressure
    [See Question 5 on Statistical Review]
    ​The hourly rate for the popular size 500 HP series is $310/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: “It’s gotten worse out there, rigs are laying down and work is slowing.”

Table I. – Average Rates for Certain Workover Rig Sizes in the Marcellus Shale

Rig Size (HP)

Average Rate

225 HP Series

$100/hour

350 HP Series

$180/hour

400 HP Series

$225/hour

500 HP Series

$310/hour

400 HP Series
w/package

$500/hour

  • Hourly Rates Down QTQ
    [See Question 6 on Statistical Review]
    ​Hourly rates for well service rigs are down 15% on average, which represents a slower decline than experienced in the last Marcellus report in February 2015.
    • Mid-Tier Well Service Manager: “We are the top of the line out here with the best equipment, safety record and management. We've been able to keep our utilization at around 60%, which is good, but work has been more spotty than usual and operators continue to ask for concessions.”
  • Virtually No Competition
    [See Question 7 on Statistical Review]
    ​Competition is nonexistent as drilling slows down. All respondents said they are not seeing new competition come into the area and are not losing bids because of aggressive competition.
    • Mid-Tier Well Service Manager: “Everyone has just shut down around here, so it is not as if lowering the rig rate helps you get work from someone.”
  • Survival is the Key Strategy
    [See Question 8 on Statistical Review]
    ​Respondents said they are trying to just get through the downturn without losing their labor force. One respondent said they are looking for opportunities in this downturn, and one believed that the decline in demand would level off soon. Another respondent said he is aware of some negotiations going on right now, but does not know what the outcome will be.
    • Mid-Tier Well Service Manager: “We have some customers that are very active right now and we have some that have slowed considerably.”
  • Most Wells Are Completed
    [See Question 9 on Statistical Review]
    ​Four respondents said they had not heard of wells not being completed and all of their customers are completing wells. One respondent said this summer would see a number of wells drilled and then not completed. Two respondents said completions have slowed down because drilling has slowed. And one respondent said that he had heard of companies not completing the wells they were drilling as they wait for prices to come back.
    • Top-Tier Well Service Manager: “Completions have slowed down and the majority of the work we have been doing is plugging. We got a contract for a workover rig from a large operator and they must be either selling a lease or taking one over because we are out there doing a lot of plugging for them right now.”

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 Marcellus Shale area. Participants included three oil and gas operators and five managers with well service companies. Interviews were conducted during early May 2015.


Part II. – Statistical Review

Workover/Well Services

[Marcellus Shale]

Total Respondents = 8

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

1. Do you expect demand for workover rigs to grow, remain the same, or shrink in 2Q15 compared to first-quarter 2015?
Shrink: 8

2. Would you characterize the supply of rigs in your area as excessive, sufficient, or insufficient to meet 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

90%

10%

0%

0%

80%

20%

0%

0%

90%

10%

0%

0%

90%

10%

0%

0%

10%

70%

10%

10%

20%

0%

80%

0%

80%

10%

0%

10%

80%

20%

0%

0%

Average 68%

Average 19%

Average 11%

Average 2%

4. Which type of well service equipment is gaining share in completions—coiled tubing (CT) units or workover rigs? What percentage of completion work is being done by CT vs. workover rigs?
100% of work completed by workover rigs 8


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

225 HP Series

$100/hour

350 HP Series

$180/hour

400 HP Series

$225/hour

500 HP Series

$310/hour

400 HP Series
w/package

$500/hour

6. Do you expect workover rig hourly rates to increase, remain the same or decrease over the next three months?
Down 10% 3
Down 15% 2
Down 20% 3
AVERAGE Down 15%

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?
Trying to survive 2
Looking for opportunities 1
Everything has shut down 1
Believe it will start to level off soon 1
Mix, some slowed and some active 1
Some negotiations happening now 1

9. What are you seeing in terms of the number of wells being drilled but not completed?
We hear companies are not completing, but we are 1
There is a general slowdown in drilling and completions 2
Haven't heard of companies not completing wells 4
This summer will see wells drilled and not completed 1

End Statistical Review