Synopsis

Pricing for well stimulation services appears to be bottoming for Appalachian service providers. With activity stabilizing, albeit at very low levels, service providers don’t think pricing will fall lower and could rise as activity builds back later this year. Service providers estimate regional capacity, as measured by hydraulic horsepower (HHP), at 1.3 million, about 300,000 HHP less than noted in the February 2015 report, though uncertainty as to the volume of regional capacity remains as contractors idle equipment and crews, or move them elsewhere. Survey participants pegged per stage pricing at $68,000, down from $76,000 in the February 2015 report (and $91,000 in December 2015). Of note, contractors report nearly all wells are hydraulically fractured once drilled in contrast to other areas of the country where operators are holding back from completing wells once they are drilled. Watch for the next Appalachian pressure pumping report in August 2015.

Part I. – Survey Findings

Among Survey Participants:

  • Slow But Steady Demand QTQ
    [See Question 1a and 1b on Statistical Review]
    ​Majority of respondents reported that demand has stabilized in the region QTQ. While demand is down considerably from 2014, current demand is expected to remain stable until oil prices recover and budgets improve.
    • Mid-Tier Service Provider: “We eventually saw budgets cut and fleets idled here in Marcellus in the first quarter, but that has now stabilized for the near term. Demand may remain at current levels until there is a general industry recovery.”
  • HHP Supply Excessive in the Region
    [See Question 2 on Statistical Review]
    ​All respondents agreed there is an oversupply of equipment to meet current needs in the area as many fleets were idled after drilling slowed.
    • Mid-Tier Service Provider: “Our main customers cut drilling by 40%, which slowed demand, but it should remain stable now until a recovery comes.”
  • 1.3 Million HHP Estimated in the Region
    [See Question 3 on Statistical Review]
    ​Total average HHP in the region is estimated at 1.3 million, with all respondents estimating HHP within a range of 1 million HHP to 2 million HHP. The estimated average has fallen to 1.3 million HHP as respondents are uncertain about total number of idled fleets.
    • Mid-Tier Service Provider: “We have seen operators cut drilling back substantially so we reduced our fleets from seven to five in the region.”
  • Marcellus Well Metrics: Vertical Depth About 6,825-ft, and Horizontal Laterals About 8,156-ft.
    [See Question 4 on Statistical Review]
    Average vertical depth reported is about 6,825-ft. in the Marcellus with an average of 8,156-ft. of horizontal lateral. Average number of stages is 32. Injection rates average 71 barrels per minute (bpm) with six stages completed daily on a 24-hour schedule.
    • Mid-Sized Service Provider: “We merged the frack fleets from our recent acquisition into our area services here in the Marcellus and were able to keep most of those existing contracts in place and offer frack fleets to our existing customer base from our cementing and coil business. Demand has been somewhat slow in today’s environment but we are poised to grow in region during any recovery.”
  • Average Cost Per Stage in Marcellus About $68,000
    [See Question 5a on the Statistical Review]
    ​The average per stage price is reported at $68,000 and is expected to remain the same over the next three months.
    • Mid-Tier Service Provider: “Prices are low enough right now that operators are still able to create efficiency here. With the stacked play action and low frack costs, we have seen a stabilizing demand here.”
  • Flat Prices Expected QTQ
    [See Question 5b on the Statistical Review]
    ​Six of eight respondents expect prices to remain the same during the next three months. Two respondents think pricing is too low and will have to gradually increase if commodity prices improve over the next quarter.
    • Top Tier Service Provider: "We have seen prices get really low here to help operators with cost. As price of oil and gas rise, so will prices need to rise for frack.”
  • Slowed Drilling and Pricing Concessions Help Operators Cope
    [See Question 6a on the Statistical Review]
    Nearly all respondents mentioned that operators have slowed drilling and negotiated “rock bottom” prices with service providers and vendors. One operator mentioned that they released half of the rigs they were using to drill. Stacked plays from the same pad are also mentioned as driving efficiencies.
  • Few Delayed Completions Reported in Marcellus
    [See Question 6b on the Statistical Review]
    Very few completions are reported as delayed in the Marcellus. While drilling has slowed, most wells are completed after being drilled. Most well processes have remained the same, but at a slower pace.

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 Marcellus/Utica area. Participants included six managers or sales personnel with well service companies and two operators. Interviews were conducted during mid May 2015.

Part II. – Statistical Review

Well Stimulation/Pressure Pumping

[Marcellus]

Total Respondents = 8

[Frac Service Providers = 6, Operators = 2]

1. Do you expect demand for pressure pumping equipment to grow, remain the same or shrink in 3Q 2015 compared to 2Q 2015?
Expect to grow: 1
Remain the same: 7

2. Would you characterize the supply of pressure pumping equipment in your area as excessive, sufficient or insufficient to meet early 2014 demand?
Excessive: 8

3a. How would you estimate total HHP capacity for the region?
Avg. total HHP among respondents 1,300,000 HHP

3b. Have any new providers entered the play in the last 90 days?
No new providers 8

3c. Have any service providers left the play in the last 90 days?
No 8*
*Two service providers have left the play, both reported in a previous report

4. What is the average vertical drilling depth, average horizontal lateral length, number of frack stages and injection rates (barrels per minute) in this play? What are the average frack stages per day? Is this a 12-hour or 24-hour shift?
Average Vertical Depth: 6,825-ft
Average Horizontal Lateral Length: 8,156-ft.*
Average No. of Frack Stages 32*
Injection rates (barrels/min) 71 bpm
Average No. of Frack Stages/Day 6
12-hr or 24-hr 24-hr on average
Avg. HHP required to Frack the play 24,000 HHP
(same as 1Q 2015)
*These lengths and stages reflect regional differences not spacing changes.

5a. What is the average cost per stage in your area now?
$60k-$70k 6
$70k-$80k 2
Average cost per stage: ~$68,000 per stage

5b. Do you expect fracking prices to increase, remain the same, or decrease over the next 3 months?
Overall increase based on higher logistical costs 2
Remain the same 6

6a. What strategies are companies putting into place to cope with a low price environment?
Slowed drilling and negotiated concessions 6
Stacked play efficiencies 1
Released 50% of rigs on contract 1

6b. What are you seeing in terms of the number of wells drilled but not completed in your area?
Very few delayed completions here 8

End Statistical Review