Synopsis

Demand for Bakken workover services is softening as drilling levels decline in the region.

The weaker economic environment is prompting some contractors to maintain work levels by cutting hourly rates, employee pay, and bundling more services into the hourly rate.

Contractors report a job mix that is 89% routine maintenance as operators do only what is necessary to sustain production.

Completion and workover services have declined to a small part of job mix. A price war is currently taking place between small independents who are cutting hourly rates to maintain market share and larger companies who have higher overhead and are reluctant to reduce pricing.

Some contractors are shutting down for the winter months. Others are laying off staff, cutting wages, reducing overhead or adjusting pricing lower in a bid to maintain revenue.

Operators previously were cutting into the backlog of drilled but uncompleted wells, but that trend has reversed over the last 90 days.

Watch for the next Bakken workover report in February 2016.

Part I. – Survey Findings

Among Survey Participants:

  • Rig Demand Weakens
    [See Question 1 on Statistical Review]
    ​Five of the eight respondents said that demand for well services and workover rigs continued to weaken in the last three months, while three said work has been steady. The three who reported stable demand said that they have had to drop prices and extend extras on the rigs in order to keep working.
    • Mid-Tier Well Service Manager: “We've had to lay people off and cut wages, but we are still opening the doors every morning and have cut back on what we have to.”
  • Number Of Rigs Excessive
    [See Question 2 on Statistical Review]
    ​The number of rigs available for work in the Bakken shale exceeds the demand for rigs. Respondents said that this would continue into 2017.
    • Mid-Tier Well Service Manager: “We're doing all right, but we are at 70% utilization when a month ago we were at 90%. We had rigs stop working. We have good relationships with our customers and we have dropped our rates.”
  • Well Service Companies Focusing On Maintenance
    [See Question 3 on Statistical Review]
    ​Among all respondents, maintenance on average accounts for 89% of work, as operators focus on only what is necessary to keep well producing in the Bakken Shale. Completions account for 7%, plug and abandonment (P&A) work accounts for 0% and workover accounts for 4% of all work performed.
    • Mid-Tier Well Service Manager: “We have 22 of our 32 rigs out working and three are on completions and the others are on production work. We have cut our completion work way back.”

Maintenance

Completion

P&A

Workover

90%

5%

0%

5%

80%

10%

0%

10%

100%

0%

0%

0%

80%

0%

0%

20%

100%

0%

0%

0%

95%

5%

0%

0%

70%

30%

0%

0%

100%

0%

0%

0%

Average 89%

Average 7%

Average 0%

Average 4%

  • Workovers Widely Used Vs. Coiled Tubing
    [See Question 4 on Statistical Review]
    ​Only one of eight respondents uses coiled tubing units when needed, which averages about 10% of this respondent’s jobs. However, seven of the eight respondents said they use strictly workover rigs for their work commitments.
    • Mid-Tier Operator: “We use coiled tubing units about 10% of the time when we need it to wash out wells that have sand in them and don't want a workover rig.”
  • Hourly Rates Vary Depending On Packages
    [See Question 5 on Statistical Review]
    The hourly rate for the popular size 500 HP series is $375/hour on average, which includes discounts that operators have demanded during the current downturn. See Table I for Average Hourly Rates.
    • Mid-Tier Well Service Manager: “We've cut our workover programs down and are only doing what we need to do. We had six rigs running and are now down to two on the workover side. Mostly we are working on maintenance jobs.”

Table I. – Average Rig Rates In Bakken

Rig Size (HP)

Average Rate

400 HP Series

$230/hour

500 HP Series

$375/hour

  • Hourly Rates Expected To Remain Flat
    [See Question 6 on Statistical Review]
    ​Hourly rates have not come down as much as day rates for land drilling rigs. However, companies have switched to focusing more on maintenance jobs as completions and other work has dried up. As most are competing for maintenance work, hourly rates have been under pressure. Still, all eight respondents said they do not expect rates to drop further in the next three months.
    • Mid-Tier Well Service Manager: “A lot of mom and pops are going to hang tight and they are bringing the rates down to stay working. The majors have a lot more overhead and cannot afford to discount as much.”
  • Competition Not Heating Up
    [See Question 7 on Statistical Review]
    ​All eight respondents said that new competition has not been a factor as most contractors had dropped their prices as low as they could go.
    • Large, Independent Operator: “We are fairly stable and we are doing what we can with our cash flow so we have reduced our expenditures as much as we can.”
  • Strategy Is Not To Drop Price Further
    [See Question 8 on Statistical Review]
    ​One operator is going to shut down for the winter months, while another is laying off staff and discounting rates. Two other well service company respondents said they will remain steady servicing existing clients, while two more said they have cut rates to stay competitive. One well service manager said they had cut the workover programs down to only maintenance work, while another said they would be offering per rig discounts to keep their utilization high during this downturn.
    • Mid-Tier Well Service Manager: “We are shutting down. Our intention is start back up in mid-June 2016. However, we don't expect that there will be a turn around. If one were to come, it won’t be until late 2016 or 2017.”
  • Wells Are Completed
    [See Question 9 on Statistical Review]
    ​Six of the eight respondents said that there has been a substantial slowdown in drilling and therefore completion work has also dried up. One operator said they continue to drill, but are not completing wells. One driller said that only the wells that were cheap to drill are being completed.
    • Mid-Tier Well Service Manager: “What you find in this market is a lot of the wells that have been have drilled this year for cheaper rates are the ones they are completing and the other ones, drilled when oil was near $90, are still in a holding pattern.”

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 Bakken Shale area. Participants included two oil and gas operators and six managers with well service companies. Interviews were conducted during early November 2015.

Part II. – Statistical Review

Workover/Well Services

[Bakken Shale]

Total Respondents = 8

[Oil & gas operators = 2, Well service companies = 6]

1. Do you expect demand for workover rigs to grow, remain the same, or shrink in fourth-quarter 2015 compared to the third quarter?

Remain the same:

3

Shrink:

5


2. Would you characterize the supply of rigs in your area as excessive, sufficient, or insufficient to meet third-quarter demand?

Excessive:

8


3. Looking at your slate of well service work—on a percentage—how much of it is workover vs. routine maintenance vs. plug and abandonment (P&A) vs. completion work?

Maintenance

Completion

P&A

Workover

90%

5%

0%

5%

80%

10%

0%

10%

100%

0%

0%

0%

80%

0%

0%

20%

100%

0%

0%

0%

95%

5%

0%

0%

70%

30%

0%

0%

100%

0%

0%

0%

Average 89%

Average 7%

Average 0%

Average 4%


4. What percentage of work is done by coiled tubing units vs. workover rigs in the Bakken Shale?

Workover rigs:

98%

Coiled tubing units:

2%


5. 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

$230/hour

500 HP Series

$375/hour

[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 three months? By what percentage?

Flat (0%):

8

Average:

Flat


7. Have you noticed competitors from other regions entering your area?

No:

8


8. What strategies are companies putting in place to cope with the low oil prices?

Reducing workover programs:

1

Shutting down for the winter months:

1

Remain steady servicing existing clients:

2

Reducing rates:

2

Lay-offs and discounting :

1

Per rig discounts:

1


9. What are you seeing in terms of the number of wells being drilled but not completed?

Drilling but not completing wells:

1

Not completing older more expensive wells:

1

Hardly any drilling so no completions happening:

6


End Statistical Survey