Survey Demographics

Hart Energy researchers completed interviews with eight industry participants in the workover/well service segment in the Permian Basin. Participants included two oil and gas operators and six managers with well service companies. Interviews were conducted during December 2014.

Part I. – Survey Findings

Among Survey Participants:

  • QTQ Demand Shrinks in 4Q14 [See Question 1 on Statistical Review]. Lower oil prices are causing concern in the Permian Basin and well service managers are already seeing demand slow down and prices under pressure. Five of the eight respondents said that demand had shrunk QTQ and three said that demand is steady, but everyone has grown cautious.
    • Anecdotal Information/Quotable: Mid-Tier Well Service Manager: “We still have our rigs out there working, but the operators are cutting back on the number of hours they are using them. They are watching their costs closely.”
  • Number of Rigs Sufficient [See Question 2 on Statistical Review]. All respondents said there are enough rigs to meet demand in the Permian Basin; however, most are concerned that lower oil prices will start to affect demand and rig availability and rates will weaken.
    • Anecdotal Information/Quotable: Mid-Tier Well Service Manager: “The slowing down on the land drilling side is trickling down to us and we are feeling a bit of a slow down and price decreases happening now.”
  • Well Service Companies Focusing More on Standard Workovers [See Question 3 on Statistical Review]. Among all respondents, standard workovers on average account for 42% of all work performed, routine maintenance accounts for 28%, plug and abandonment (P&A) work accounts for 11% and completion work accounts for 19%. The percentage of time spent on workover, maintenance, P&A or completion was dependent upon the cycle stage of each respondent.
    • Anecdotal Information/Quotable: Mid-Tier Well Operator: “There were a number of service guys at a gathering I was just at and they were talking proactively about managing their costs to not get left behind. On the maintenance side as well, you will see people doing what they can to keep working; if they are laid down for completion they will be looking to pick up other work.”

  • 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.
    • Anecdotal Information/Quotable: Mid-Tier Operator: “We are not using coiled tubing, but we are starting horizontal wells so I don’t know if we will be in the future.”
  • Hourly Rates Consistent Among HP Series [See Question 5 on Statistical Review]. Most of the workover rigs horsepower fall within the range of the 500 series. The 500 HP hourly rates average $300 to $500/hour depending on what ancillary equipment is contracted. See Table I for Average Hourly Rates.
    • Anecdotal Information/Quotable: Mid-Tier Operator: “I got a letter today that said they are cutting equipment prices 10% across the board. So it is starting. The price drop has just come on everyone's radar.”

  • Hourly Rates Down QTQ [See Question 6 on Statistical Review]. Six respondents said that rates were weakening QTQ, while two respondents said they have not seen any changes in rates. In addition, rates are expected to decline by an average 13% 1Q15 vs. 4Q14.
    • Anecdotal Information/Quotable: Mid-Tier Well Service Manager: “For one company, they were going to pick up a bunch of horizontal rigs and now decided to stay status quo and will hold what they have and will not do any vertical drilling. So far, we have a good relationship with a lot of our customers and we work pretty well every day. We haven't dropped our prices, but for other people -- I'm sure there will be pressure before long.”
  • Competition Not Affecting Fleet Utilization [See Question 7 on Statistical Review]. All respondents said that competition had not been a problem lately, and that they were not anticipating it would be given oil.
    • Anecdotal Information/Quotable: Mid-Tier Well Service Manager: “There have been no new companies popping up lately.”
  • Lower Oil Prices Impacting Demand [See Question 8 on Statistical Review]. Over half of the respondent said that demand had shrunk QTQ because of lower oil prices. In addition, rates were under pressure for six of the eight respondents.
    • Anecdotal Information/Quotable: Mid-Tier Operator: “We haven’t seen prices come down, but we are expecting them to shortly.”
  • 2015 Activity Uncertain and Causing Concern [See Question 9 on Statistical Review]. All respondents said if oil prices remain low in the next six months that demand would slow and prices would drop. However, three of the eight respondents said they would continue to work steady because some operators would not stop work completely.
  • Anecdotal Information/Quotable: Mid-Tier Well Service Manager: “Who knows about 2015. It won't be pretty. It can change on a dime. You are going to see some ramping down on the drilling side if prices stay low. We are in maintenance mode on the production side so they still need the cash flow regardless.”

Part II. – Statistical Review, Workover/Well Service Segment

Total Respondents = 8 [Oil & Gas Operators = 4, Well Service Companies = 4]

1. Do you expect demand for workover rigs to grow, remain the same, or shrink in 4Q14 compared to 3Q14?

Remain the Same: 3

Shrink: 5

2. Would you characterize the supply of rigs in your area as excessive, sufficient, or insufficient to meet the 4Q14 demand?

Sufficient: 8

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

4. How are coiled tubing (CT) units impacting your company's slate of work? Would you say CT units are getting more, less or the same amount of work that would have gone to work over rigs compared to six months ago?

Do not use coiled tubing: 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.]

6. Do you expect workover rig hourly rates to increase, remain the same or decrease over the next 3 months? By what %?

Remain the same (0%): 2

Down 8%: 1

Down 10%: 3

Down 15%: 1

Down 50%: 1

Average: Down 13%

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 has been the near-term effect of the drop in oil prices in your area?

No near-term effect, but cautious: 3

Rates haven’t dropped yet, but will drop: 2

Rates are weakening: 3

9. What do you foresee happening in your area in 2015 if the oil prices stay down?

Rates will be cut: 4

Can’t cut rate without cutting labor cost: 1

Predicting stability unless it gets worse: 3