Survey Demographics

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

Part I. – Survey Findings

Among Survey Participants:

  • Rig Demand Weaker QTQ [See Question 1 on Statistical Review]. Six respondents said demand had slowed QTQ, while two said drilling was under long-term contracts and so had continued steady; however, all respondents were cautious about demand and pricing going into 2015. All of the respondents said they are watching the market and strategizing about how they would respond in the near-term.
    • Top-Tier Driller: “We are hearing that rates are going down as much as 30% QTQ and rigs are stacking. We have not lowered our prices because we are in long-term contracts. We suspect the operators might try to come in and renegotiate those but we will try to get extended terms.”
  • Rig Inventory Veering Towards Excessive [See Question 2 on Statistical Review]. Three of eight respondents said that there is now excessive rig inventory in the Eagle Ford, while five said rig inventory was sufficient to meet demand. However, the five who said that inventory is sufficient were in agreement that rigs would begin to stack if oil prices do not rise.
    • Mid-Tier Operator: “We're asking our service providers to relook at their costs and pricing and we have a number of providers who are already on the bandwagon reducing their prices. The service guys are mostly interested in market share and we want them to have that too so when the price recovers we want them to hit the ground running and not have to retrain a bunch of guys.”
  • No Demand for Newbuilds [See Question 3a and b on Statistical Review]. There was no demand for newbuilds in the Eagle Ford, and all respondents said they did not anticipate that orders would pick up anytime soon.
    • Top-Tier Driller:“We are stacking rigs and project to have 200 stacked by the end of March 2015.”
  • Rig Day Rates Remain Steady Under Contract [See Question 4 on Statistical Review]. The range for rig rates in the Eagle Ford was $20k to $27k for a 1500-HP rig. The rates were similar to what respondents quoted in 3Q14; however, more than half of the respondents said that prices had just begun to decrease on rigs that are not under contract. Rig rate averages given by survey participants can be seen in the table below.
    • Mid-Tier Operator: “Rig day rates will have to come down 30% to 40% at least. We have seen this before and I have seen rig rates drop in half before. They've been enjoying some very good years. We don't know what the price will bottom at and we’re hoping it’s a bottom now but it is too early to know.”

  • Rig Rates To Drop Further [See Question 5 on Statistical Review]. Six respondents said rig rates had dropped QTQ and expected them to drop further if oil prices did not start to recover. Two respondents said that prices had not changed because they were under long-term contracts.
    • Top-Tier Driller: “Any rig not under contract is seeing pricing dropping from 10% to 20% or even more depending on how bad you want them working.”
  • Oil Prices Drag Down Demand [See Question 6 on Statistical Review]. Only one respondent out of the eight said there had been no near term effect on rig demand because of oil prices, but seven respondents said that lower oil prices had caused rig demand to decline and caused operators to seek rate reductions and more flexibility in terms.
    • Mid-Tier Driller: “We ran 10 to 12 rigs in 2012 and in mid 2014 cut down to eight rigs and for 2015 we are seeing doing more wells for less capital for more efficiency. It is just unfortunate the price of oil is taking a dip.”
  • 2015 Oil Price Watch [See Question 7 on Statistical Review]. All respondents said that where oil prices are in 2015 would determine everyone’s strategy in the new year. Right now if prices continue to be low, most respondents said demand for drilling would continue to decline.

Part II. – Statistical Review, U. S. Land Drilling – Eagle Ford Shale

Total Respondents = 8

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

Remain the Same: 2

Shrink: 6

2. Would you characterize the supply of rigs in your area as excessive, sufficient, or insufficient to meet the second half of 2014 demand?

Excessive: 3

Sufficient: 5

3a. In your area, do you expect there will be an influx of newbuild rigs during the next six months?

No: 8

3b. What size and type of rigs do you expect will come into the market?

Not applicable: 8

4. What are the average rig day rates in your area? Is this rate for an AC Power, Diesel-SCR, or Conventional Mechanical type of rig? [Rates shown are an average ‘per day’ rate among all respondents in the category.] (k = thousand)

5. Do you expect rig day rates to increase, remain the same or decrease over the next 3 months?

Remain the Same (0%): 2

Down (average 9%): 6

6. What has been the near-term effect on activity in your area due to the drop in the price of oil?

Rig day rates have been reduced: 6

Nothing yet, but will see slowdown in 2015: 2

7. Looking forward to 2015, what are your expectations for drilling activity if the oil price hovers around $80?

Less activity: 2

Demand for drilling will be down: 6

Drilling but no growth drilling: 1