Synopsis

Concern over the growing volume of delayed fracks—now estimated at 2,000 wells—could be the first green shoot in a long-anticipated rise in demand for Permian Basin pressure pumping services. Market improvement could come as early as third-quarter 2015. Otherwise, the region’s well stimulation market is characterized as stabilized currently. Pricing has also stabilized at about $56,000 per stage for plug and perf versus $32,000 per stage for coiled tubing conveyed sliding sleeve fracture stimulation. Hydraulic horsepower (HHP) per well averages 22,000 for plug and perf and 14,500 for coiled tubing sliding sleeve completions. Service providers have reduced regional crew count by 50%, though regional pressure pumping capacity remains at 1.2 million HHP. Service providers say pricing won’t go any lower despite some of the bigger firms attempting to grab market share by working at pricing below operating costs. Meanwhile operators continue to favor slickwater plug and perf with bulk commodity sand as a cost saving measure over coiled tubing sliding sleeve with resin coated sand. Average cost to stimulate a well with plug and perf is pegged at $1.8 million versus $2.2 million for coiled tubing conveyed sliding sleeves. Watch for the next Permian Basin well stimulation report in September 2015.

Part I. – Survey Findings

Among Survey Participants:

  • Third-Quarter 2015 Demand Expected Stable at Current Levels
    [See Question 1a and 1b on Statistical Review]
    ​Five respondents reported that demand has stabilized and is expected to remain the same third-quarter 2015 compared with second quarter. Three respondents see increased demand coming soon as concern over backlog of delayed fracks has been growing.
    • Mid-Tier Service Provider: “We now hear concern about the backlog of delayed fracks and there are worries about how quickly this could become an issue if demand increases soon.”
  • HHP Supply Excessive for the Region
    [See Question 2 on Statistical Review]
    ​Five of eight respondents reported that HHP supply is excessive currently, but three reported active fleets are sufficient.
    • Mid-Tier Service Provider: “We have managed to keep most of our fleets operating albeit at much lower pricing, but there is still enough oversupply to suppress prices. We also have a couple of majors bidding at a loss to grab market share and drive little guys out.”
  • Uncertainty About HHP Capacity Continues
    [See Question 3 on Statistical Review]
    ​Respondents report that active HHP is down by half and now stands at 1,200,000 HHP. However, HHP could become undersupplied in the region if operators begin to frack the backlog of wells.
    • Small Service Provider: “We are down from four fleets to one active fleet, but have managed to keep our best experienced employees and managers working in order to be ready to ramp up with demand if recovery comes soon enough for us to survive.”
  • Permian/Wolfcamp Well Metrics: Vertical Depth Range 7,000-8,500 feet, Horizontal Laterals ~8,400 feet
    [See Question 4 on Statistical Review]
    ​Respondents working mainly in the Wolfcamp formation reported that average vertical depth is in a range of 7,000 feet to 8,500 feet and horizontal laterals average 8,437 feet. Most respondents reported metrics using plug and perf for fracks, but several reported sliding sleeve numbers as well.
    • Completions Consultant: “We have seen some operators go back to less expensive plug and perf methods, but many clients are committed to the slightly more expensive coil/sleeve fracks and to resin-coated sand.”
  • Average Cost Per Stage: ~$56,000 for Plug and Perf; ~$32,000 for Sleeve Fracks
    [See Question 5a on the Statistical Review]
    ​The average per stage price is $56,000 for plug and perf fracks with the large sand volumes. Average per stage price for sliding sleeve stages is $32,000, slightly higher than last report likely because of reports involving ceramics and resin sand in those reports. Operators have re-negotiated all completions costs in this environment.
    • Mid-Tier Service Provider: “We continue to recommend the coil fracks with sliding sleeve but we do many fracks with both methods as desired by the various operators. Less expensive plug and perf are slightly more in demand now.”
  • Stability in Prices Expected QTQ
    [See Question 5b on the Statistical Review]
    ​Five of eight respondents expect prices to remain the same, which is at the bottom, during the next three months. Three respondents expect prices to rise based on fewer delayed fracks and an improving oil price.
    • Mid-Tier Operator: "The prices are bottomed out from the frack company’s perspective, and there is nowhere to go but up as demand begins to increase.”
  • Companies Respond to Keep Prices for Completion Low
    [See Question 6a and 6b on the Statistical Review]
    Delayed fracks, slower drilling overall, and pricing concessions are all mentioned as cost-saving tactics for E&P companies across the play. These methods have kept prices flat, but concern over the growing backlog of wells not completed will warrant watching closely in the coming quarter according to several respondents.

End Survey Findings

Survey Demographics

H A R T E N E R G Y researchers completed interviews with eight industry participants in the well stimulation/pressure pumping service segment in the Permian Basin area. Participants included three frack consultants, two frack supplies salesmen, one oil operator and two managers or sales persons with well service companies. Interviews were conducted during the third week of June 2015.

Part II. – Statistical Review

Well Stimulation/Pressure Pumping

[Permian Basin]

Total Respondents = 8

[Completion Consultants= 3, Frack Equipment Suppliers = 2, Frack Service Providers = 2, E&P Operators = 1]

1. Do you expect demand for pressure pumping equipment to grow, remain the same or shrink in third-quarter 2015 compared to second quarter?
Stay the same: 5
Expect to grow: 3

2. Would you characterize the supply of pressure pumping equipment in your area as excessive, sufficient or insufficient to meet early 2015 demand?
Oversupply: 6
Sufficient: 2*
*Respondents who said supply was sufficient expect increasing demand in coming quarter could quickly turn to undersupply.

3. How would you estimate total HHP capacity for the region?
Avg. total HHP among respondents ~1,200,000 HHP*
*This number reflects that providers have cut 50% of crews

4. What is the average vertical drilling depth, average horizontal lateral length, number of frack stages and injection rates (barrels/min) in this play? How much HHP is required to frack these wells? What are the average frack stages per day? Is this a 12-hour or 24-hour shift?
Permian Basin
Vertical depth range: 7,000-8,500-ft.*
Average horizontal lateral length: 8,437-ft**
Average no. of frack stages for sleeves: 70
Average no. of frack stages for plug and perf: 32
Injection rates (barrels/min) for standard: 70 bpm
Injection rates (barrels/min) for coil fracks: 24 bpm
HHP required to frack (for PP/for SS): 22,000 HHP for plug and perf/14,500 HHP for sliding sleeve
Average no. of frack stages/day for standard: 6
Average no. of frack stages/day for coil fracks: 10
12-hr or 24-hr: 24-hr
* Respondents gave ranges across the region
**Several respondents gave metrics for Wolfcamp

5a. What is the average cost per stage in your area now?
Average of sliding sleeve stages: $32,000 (per stage)
Average of plug and perf stages: $56,000 (per stage)
Average cost per well using sliding sleeves: $2.2 million*
Average cost per well using plug and perf: $1.8 million*
*Cost per well figures reflect cost per stage times average number of stages

5b. Do you expect fracking service prices to increase, remain the same, or decrease over the next three months?
Increase (no % estimated) 3
Remain the same 5

6a. What strategies are companies putting into place to cope with a low price environment?
Operators asking and getting price concessions 2
Slower drilling overall 3
Delayed fracks 3

6b. What are you seeing in terms of the number of wells drilled, but not completed in your area?
Operators are delaying many completions (no specific #) 2
Backlog of over 2,000 fracks on drilled wells 3
Number of delayed fracks is slowing 1

End Statistical Survey