Synopsis

The completions market has dried up in Bakken as drilling levels decline. Completions made up 16% of workflow for contractors participating in the survey versus 23% in the fourth quarter. Contractors report discounting for well servicing is widespread and varied. Average hourly rates are down 15% QTQ, although the range is 10% to 25%. Rates for 500 HP series rigs were $522 in November 2014 versus $423 in February 2015. The general outlook among well service contractors is that the Bakken still has a ways to go before the cycle bottoms out. Watch for the next Bakken well servicing update in May 2015.

Part I. – Survey Findings

Among Survey Participants:

  • Rig Demand Down QTQ

[See Question 1 on Statistical Review]

All respondents said demand for well services had dropped in 1Q15 vs. 4Q14 due to lower oil prices and a slowdown in land drilling in the Bakken Shale. Rigs are stacking out in the area and rates are under pressure.

Mid-Tier Well Service Manager: “Drillers are getting hammered, but not as bad as the frac companies and almost everyone has serious utilization and price reductions happening now.”

  • 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 Bakken Shale, which is leading to lower rig rates and rigs stacking.

Mid-Tier Well Service Manager: “We went from one out of three rigs not working in November to two rigs out of three and then cut back to no rigs working. Our rates have gone down from $500 to $425/hour. We have cut rates and we still have three rigs not working. I don't think the burn has been felt long enough for the oil companies to shop around for price.”

  • Well Service Companies Mostly Evenly Split Tasks

[See Question 3 on Statistical Review]

Among all respondents, workover on average accounts for 15% of work, routine maintenance accounts for 63%, plug and abandonment (P&A) work accounts for 6% and completion work accounts for 16%.

Workover

Maintenance

P&A

Completion

25%

25%

25%

25%

0%

80%

0%

20%

0%

50%

0%

50%

0%

100%

0%

0%

0%

100%

0%

0%

70%

0%

0%

30%

0%

100%

0%

0%

25%

45%

25%

5%

Average 15%

Average 63%

Average 6%

Average 16%

Mid-Tier Well Service Manager: “We are getting a little bit better hits on the completion side, but it is still extremely price sensitive, more so than on the production side. There is very little completion happening right now.”

  • Use of Coiled Tubing Not Growing

[See Question 4 on Statistical Review]

None of the respondents were using coiled tubing and did not expect its use to grow in the area.

Mid-Tier Well Service Manager: “We don’t use coiled tubing.”

  • Hourly Rates Consistent Among HP Series

[See Question 5 on Statistical Review]

The hourly rates for workover rigs do not necessarily reflect the discounts that are being offered in the Bakken because each contractor is dealing with clients differently. Some are offering a percentage discount across all clients, and some are dealing with clients on a client-by-client basis, and some are doing both. See Table I for Average Hourly Rates.

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

Rig Size (HP)

Average Rate

300 HP Series

$250/hour

400 HP Series

$300/hour

500 HP Series

$423/hour

600 HP Series

$440/hour

Mid-Tier Well Service Manager: “We have to go down about 20% on our rates and it’s still slow because all of the wells are being shut down. Operators won’t work on them till they have to and most of the work we are doing is just regular maintenance because some of the drilling is still going on, but they are not going to complete those wells. They just drill and leave them, waiting till the price of oil comes back up and so completion work has pretty much stopped.”

  • Hourly Rates Down QTQ

[See Question 6 on Statistical Review]

All but one respondent said that prices are lower by 15% QTQ on average due to lower oil prices. Rates are expected to go down further in 2015 if oil prices do not climb back up.

Mid-Tier Well Service Manager: “We are going client by client with discounts down 10% to 25% and anywhere in between there.”

  • No New Competition

[See Question 7 on Statistical Review]

All respondents said that competition had not increased QTQ, and they were not anticipating it would, given lower oil prices. However, one respondent said that they had been able to pick up work and be more competitive due to rates being under pressure.

Mid-Tier Well Service Manager: “We have seen where the market was going which has opened up doors for us and allowed us to bid on work where people wouldn't even talk to us before. It's very competitive right now. We are able to be more price competitive and all our equipment is brand new.”

  • 2015 Demand and Rates Under Pressure

[See Question 8 on Statistical Review]

Respondents were mixed about how 2015 would proceed, while all are cautious and believe the bottom has not been hit yet. Two respondents said that good working relationships with the majors made them feel more secure about their workload this year, even while they had to make price concessions. Six of the eight respondents said that if oil prices remain low the area would see further discounts on rates and more rigs stacking.

Mid-Tier Well Service Manager: “I wouldn't try to speculate on what happens and I would look at how much supply is being built into the system. This is not a speculator panic, it is really driven by supply, still overproducing by 2 million barrels a day and that has not gone away, so until that supply goes down, you will see a prices getting worse unless the Saudis stop overproducing.”

End Survey Findings

Survey Demographics

Hart Energy researchers completed interviews with eight industry participants in the workover/well service segment in the Bakken Shale area. Participants included an oil and gas operator and seven managers with well service companies. Interviews were conducted during February 2015.