Survey Demographics

Hart Energy researchers completed interviews with eight industry participants in the workover/well service segment in the Eagle Ford Shale area. Participants included five oil and gas operators and three managers with well service companies. Interviews were conducted during December 2014.

Part I. – Survey Findings

Among Survey Participants:

  • Rig Demand Down QTQ [See Question 1 on Statistical Review]. Seven of the eight respondents said that demand had dropped in 4Q14 vs 3Q14, and all blamed lower oil prices for the slowing. One respondent said that lower oil prices were not affecting demand or rates.
    • Mid-Tier Operator: “The price of oil has everyone's attention; we were tweaking down in September, now I need another word between tweaking and freefall.”
  • Number of Rigs Sufficient [See Question 2 on Statistical Review]. All respondents said the number of rigs in the Eagle Ford area is sufficient to meet shrinking demand. No respondent had seen well service rigs beginning to stack.
    • Mid-Tier Operator: “Because there are thousands and thousands of new wells in the Eagle Ford, I don't think this area is getting affected as much on the well service side. The major rework on a new well will stop, but day-to-day maintenance will continue. So prices are slightly soft, but it is not like the drilling or fracking side, which are the two largest costs out there.”
  • Well Service Companies Mostly Evenly Split Tasks [See Question 3 on Statistical Review]. Among all respondents, standard workover on average accounts for 28% of all work performed, routine maintenance accounts for 28%, plug and abandonment (P&A) work accounts for 19% and completion work accounts for 25%.
    • Mid-Tier Operator: “The lower oil prices first hurts the drilling guys and the next to get hit will be the completion guys.”

  • Use of Coiled Tubing Not Growing [See Question 4 on Statistical Review]. None of the respondents were using coiled tubing and did not expect use to grow in the area.
    • Mid-Tier Operator: “We haven’t been using coiled tubing in the Eagle Ford even though I know some have.”
  • 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 $600/hour depending on what ancillary equipment is contracted. See the table below for Average Hourly Rates in the Eagle Ford.
    • Mid-Tier Well Service Manager: “Customers are calling and seeking a high single digit reduction across the board.”

  • Hourly Rates Down QTQ [See Question 6 on Statistical Review]. All but one respondent said that prices are lower 8% QTQ due to lower oil prices. Rates are expected to dive further in 2015 if oil prices do not climb back up. Two respondents believed rates would stabilize and move up by mid 2015.
    • Mid-Tier Well Service Manager: “Customers are seeking and demanding lower rates. Not everybody is hedged. The other thing we have seen in the past that some of the hedged firms run out of money after a while and they default. We have seen hedging companies go bankrupt.”
  • 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 be given lower oil prices.
    • Mid-Tier Well Service Manager: “Competition is not affecting us right now.”
  • Lower Oil Prices Impacting Demand [See Question 8 on Statistical Review]. All but one respondent said that the lower oil prices and the end of year had companies pulling back on number of hours, dropping prices across certain areas of labor costs, and lowering hourly rates for rigs.
    • Top-Tier Well Service Manager: “Rig pricing is coming down 6% to 10% and 2015 does not look too good. Look at where oil prices are now. I think it will be a drawn out situation; the next 12 to 18 months at least will be slow with prices bouncing up and down and potentially staying in the $40-$60 range, which is too low for the Eagle Ford and North Dakota.”
  • 2015 Demand Under Pressure [See Question 9 on Statistical Review]. Five of the eight respondents said 2015 would see further reductions in demand and hourly rates and even labor rates, if the price of oil does not rise. Two respondents said that they expect prices to go up before mid-year 2015, and one said that the lower oil prices would not affect business.
    • Mid-Tier Operator: “We expect 2015 will still be volatile with lower oil prices for 1Q15. Then in 2Q15, we anticipate it will rise and stabilize at $80/barrel.”

Part II. – Statistical Review, Workover/Well Services [Eagle Ford Shale]

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 4Q14 compared to 3Q14?

Remain the Same: 1

Shrink: 7

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%): 1

Down 5%: 1

Down 7.5%: 1

Down 8%: 2

Down 10%: 2

Down 13%: 1

AVERAGE: Down 8%

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?

Rates have already dropped: 5

Demand has slowed down, prices will drop: 3

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

Rates will remain volatile: 2

Bigger cuts will come: 1

Drilling demand will be soft till mid-year: 2

Some companies will continue drilling: 3