Synopsis

Operator attitudes have perked up in Midland, Texas, with $50 oil, though demand for workover services remains flat, according to Hart Energy’s Heard In The Field survey.

Workover rig hourly pricing in the Permian Basin was also flat over the last 90 days at $250 per hour. Pricing now appears to have bottomed.

Job mix continues to center primarily on routine maintenance work, which accounted for 90% of activity among survey respondents.

Operators participating in the survey said low service prices and improving commodity prices are a positive. However, workover service providers countered that the current cost structure to provide services is unsustainable and will improve when activity—and hourly rates—increase.

Contractors expect activity to remain flat over the next 90 days despite growing optimism in local coffee shops.

Watch for the next Heard In The Field report on the Permian Basin workover/well service market in September.

Part I. – Survey Findings

Among Survey Participants:

  • Workover Rig Demand Continues To Be Slow
    [See Question 1 on Statistical Review]
    Respondents agreed that demand for workover rigs has remained the same at low levels during the past three months. The majority of work is associated with maintaining producing wells to keep cash flowing.
  • Oil, Gas Prices Dictate Demand
    [See Question 2 on Statistical Review]
    Seven out of eight respondents said that the key catalyst to stimulating well service demand in the Permian is higher oil and gas prices. Secondary triggers are associated with companies that are debt-free, have working capital and own superior acreage. All but one survey respondent agreed the price of oil will determine the turnaround.
  • Few Mergers, Acquisitions In Permian
    [See Question 3 on Statistical Review]
    ​All eight respondents said they are not seeing M&A activity among well service companies. Four said they were surprised that there had not been more mergers during this downturn, but said most companies are waiting for the market to turn.
    • Mid-Tier Operator: “We would have expected to see more mergers in the downturn.”
  • Maintaining Wells Important
    [See Question 4 on Statistical Review]
    ​All eight respondents said a majority of job mix—90%—was directed towards necessary well maintenance only in the Permian Basin, up from 80% in the March survey. Respondents said completion work was steady, but not increasing as operators slowed drilling and began vetting drilled but uncompleted wells (DUCs).
    • Mid-Tier Operator: “There wasn't as much drilling in this area [Delaware Basin] as in Midland and Odessa so there is not a lot of completion work to do. We are mostly doing well maintenance and that is slow, but steady.”

Maintenance

Completion

P&A

Workover

90%

10%

0%

0%

90%

10%

0%

0%

75%

20%

5%

0%

100%

0%

0%

0%

100%

0%

0%

0%

100%

0%

0%

0%

65%

15%

0%

20%

100%

0%

0%

0%

Average 90%

Average 7%

Average 1%

Average 2%

  • New Completions Outweigh Remedial/Refrack Work
    [See Question 5 on Statistical Review]
    ​Five of the eight respondents said that the completion work they were awarded in the last three months has been new well completions. Although there was a growing backlog of DUCs in 2015 as operators waited on oil prices to recover, reductions in service pricing have encouraged operators to complete wells in 2016. The remaining three respondents said they had not received any completion work during second-quarter 2016.
    • Mid-Tier Well Service Manager: “Some of the wells need to be completed after a year or getting close to a year of sitting and waiting. We are not postponing completions right now. It is easier to get the frack crews than it was a year ago.”
  • Hourly Rates May Be Bottoming
    [See Question 6 on Statistical Review]
    ​The average hourly rate for the benchmark 500 horsepower (hp) series C is $250 per hour with all respondents saying that well service rates are in a lull. Hourly rates are not materially different from the $253 per hour reported in the March survey. See Table I for average hourly rates.
    • Mid-Tier Operator: “Oil prices are down but so are costs. That is why you are seeing more companies completing their wells now.”

Table I. – Average Rates For Permian Workover Rigs

Rig Size (hp)

Average Rate

400 hp series

$200/hour

500 hp series

$250/hour

600 hp series

$275/hour

  • Hourly Rate Forecasted Flat Quarter-To-Quarter
    [See Question 8 on Statistical Review]
    ​All eight respondents said they do not expect costs to go down any further. One respondent said operators are starting to think about drilling again with oil prices hovering near $50 per barrel. However, most service companies cannot continue to operate at current margins even as operators formulate future plans based on the low cost of workover rigs.
    • Mid-Tier Operator: “$50 oil has perked up Midland. Some operators are starting to get active.”

End Survey Findings

Survey Demographics

H A R T E N E R G Y researchers completed interviews with eight industry participants in the workover/well service segment in the Permian Basin. Participants included four oil and gas operators and four managers with well service companies. Interviews were conducted during May 2016.

Part II. – Statistical Review

Workover/Well Services

[Permian Basin]

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 second-quarter 2016 compared to the first quarter?

Remain the same:

8


2. Besides better oil and gas prices, are there any other catalysts that would help drilling improve?

Price is most important:

7

Cash/Capital:

1


3. Have there been any workover companies in your area that have merged together with another workover company?

Not seeing mergers or acquisitions in the Permian:

8


4. Looking at your slate of well service work, how much of it is workover vs. routine maintenance vs. plug and abandonment (P&A) vs. completion work?

Maintenance

Completion

P&A

Workover

90%

10%

0%

0%

90%

10%

0%

0%

75%

20%

5%

0%

100%

0%

0%

0%

100%

0%

0%

0%

100%

0%

0%

0%

65%

15%

0%

20%

100%

0%

0%

0%

Average 90%

Average 7%

Average 1%

Average 2%


5. Observing the percentage of completions, how much of the total percentage would be new completion work vs. remedial completion work?

No completion work at all this quarter:

3

100% new completion work:

5


6. What size (horsepower) workover rigs do you own? What is a representative rate for this size workover rig in your area?

Rig Size (hp)

Average Rate

400 hp series

$200/hour

500 hp series

$250/hour

600 hp series

$275/hour

[Rates shown are an average rate among all respondents in the category.]


7. Do you expect workover rig hourly rates to increase, remain the same or decrease over the next three months?

Flat 0%:

8


End Statistical Survey