Synopsis

Midcontinent workover market utilization has fallen to 25% vs. peak as smaller firms shut in operations and workover firms who had expanded into the region, or began business as new start-ups, close out their offices.

Job mix is now 91% routine maintenance as operators do only what is necessary to keep production online. However, Hart Energy’s Heard In The Field survey found that some operators are now postponing even routine maintenance until oil prices recover.

As is the case on the drilling side, workover contractors say their customers need $51 oil and natural gas above $2.82 for activity to reach an economic threshold in the Midcontinent.

Though utilization remains low, pricing appears to have stabilized with the benchmark 500 series C workover unit drawing $252 an hour, unchanged over the last 90 days. Contractors don’t expect pricing to go any lower over the next 90 days, which suggests the region’s workover market may be in the bottoming phase of the oil and gas cycle.

Watch for the next Heard In The Field report on the Midcontinent workover market in June 2016.

Part I. – Survey Findings

Among Survey Participants:

  • Midcontinent Workover Demand Minimal
    [See Question 1 on Statistical Review]
    ​Demand for workover rigs as second-quarter 2016 begins is steady, but low compared to the first quarter. Respondents said that operators are either shutting-in waiting for the oil price to go up or are operating at a greatly reduced capacity so there is very little well service work under contract. Operators are maintaining wells that are producing, but otherwise are not drilling new wells.
    • Mid-Tier Operator: “We're producing everything just like normal. We have bills to pay and have to keep the wells running, so we need to do the work on them.”
  • Oil Prices Need To Top $50
    [See Question 2 on Statistical Review]
    ​Respondents gave a wide range for oil price per barrel, from $20 to $70, citing varied strategies by companies and the various positions companies are in at this time. Cash flow, debt, and long-term strategy played an equal role with the price of oil per barrel. The average price according to all respondents was $51 per barrel of oil for demand for workover rigs to increase.
    • Mid-Tier Well Service Manager: “If we would get in the $45 to $50 price range demand for drilling and well services would pick up.”
  • Gas Prices Approaching $3 Would Be Ideal
    [See Question 3 on Statistical Review]
    ​Four of the nine respondents said that gas prices between $2 and $2.75 would cause demand to pick up. Three of the respondents said that gas would have to be between $3 and $3.50. The average gas price among all respondents was $2.82.
    • Top-Tier Operator: “If gas prices would increase $3 to $4 range that would be helpful. The focus has been on oil price, but there are viable projects that have assets in both.”
  • Routine Maintenance Of Wells Get Lion’s Share Of What Work Is Available
    [See Question 4 on Statistical Review]
    ​Among all respondents, routine maintenance on average accounts for 91% of work, up from 88% as reported in January. Operators continue to focus on what is necessary to keep wells flowing in the Midcontinent. Completions account for 9%, plug and abandonment (P&A) work accounts for 0%, and workover accounts for 0% of all work performed.
    • Mid-Tier Operator: “January and February were very slow and there were people shutting wells down. If a well would break down they would just leave it down instead of fixing it.”

Maintenance

Completion

P&A

Workover

80%

20%

0%

0%

100%

0%

0%

0%

90%

10%

0%

0%

100%

0%

0%

0%

80%

20%

0%

0%

90%

10%

0%

0%

80%

20%

0%

0%

100%

0%

0%

0%

100%

0%

0%

0%

Average 91%

Average 9%

Average 0%

Average 0%

  • Hourly Rates Vary
    [See Question 5 on Statistical Review]
    ​The hourly rate for the popular size 500 horsepower (hp) series C workover unit is $252 per hour on average and about the same as reported in January. All respondents said that well service rates have not declined in the last three months. See Table I for average hourly rates.
    • Mid-Tier Well Service Manager: “No company is doing well. Some are trying to figure out cash flow, some are overly leveraged, some are operating on cash and some have dropped their prices too low.”

Table I. – Average Rates For
Midcontinent Workover Rigs

Rig Size (hp)

Average Rate

200 hp series

$135 per hour

300 hp series

$150 per hour

400 hp series

$180 per hour

500 hp series

$252 per hour

  • Hourly Rates Expected To Remain Flat Next Three Months
    [See Question 6 on Statistical Review]
    ​Hourly rates are significantly lower than last year and are expected to remain at low levels during the next three months. Respondents all said they could not go lower because they are already hovering at or below margin right now.
    • Mid-Tier Well Service Manager: “So far, since the price began to slide, we have taken three price reductions and our volume is off 55% year-to-year.”
  • Workover Industry Operating At 25% Capacity
    [See Question 7 on Statistical Review]
    ​Several respondents said they are operating at 25% of capacity, a utilization rate significantly lower than the same time last year. None of the respondents are aware of any competitor doing better than others.
    • Mid-Tier Well Service Manager: “There are some smaller companies that only have a few customers they work for where we work for 300 customers and so we had a bigger client base than the average well servicing company. That has really helped in times like these.”
  • Some Small Companies Shutting In Operations
    [See Question 8 on Statistical Review]
    ​Four of the nine respondents said smaller “mom and pop” workover companies were either leaving the Midcontinent region or shutting in operations for the meantime. Another two respondents said they did not know of any companies going out of business in the area.
    • Mid-Tier Well Service Manager: “There are a few companies in our area who came in as sort of start-ups or expansion companies and they are going back to where they came from. They were not originally in this basin, but came here and don’t have enough work to keep their yards open. They might just lock their yards until they see what comes up.”
  • Some Sluggish Payments
    [See Question 9 on Statistical Review]
    Eight respondents said that delayed payments are most likely happening in the Midcontinent area, but they are not experiencing it first-hand. One respondent said that there have been additional 60-day delays added on to invoices.

End Survey Findings

Survey Demographics

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

Part II. – Statistical Review

Workover/Well Services

[Midcontinent]

Total Respondents = 9

[Oil and gas operators = 4, Well service companies = 5]

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:

9


2. What would oil prices (per barrel) have to be for demand for drilling rigs to improve?

$45:

2

$50:

4

$60:

2

No specific number:

1

Average:

$51


3. What would gas prices have to be for demand for drilling rigs to improve?

$2:

1

$2.50:

2

$2.75:

1

$3:

1

$3.50:

2

Gas prices don’t matter to us:

2

Average:

$2.82


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

Maintenance

Completion

P&A

Workover

80%

20%

0%

0%

100%

0%

0%

0%

90%

10%

0%

0%

100%

0%

0%

0%

80%

20%

0%

0%

90%

10%

0%

0%

80%

20%

0%

0%

100%

0%

0%

0%

100%

0%

0%

0%

Average 91%

Average 9%

Average 0%

Average 0%


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

200 hp series

$135 per hour

300 hp series

$150 per hour

400 hp series

$180 per hour

500 hp series

$252 per 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?

Flat:

9


7. Which well service companies are the most active in your area during the downturn?

No one is doing well in this market:

4

Well service companies operating at 25% capacity:

3

Some companies drilling but doing very little workover:

2


8. Are there any well service companies that have gone out of business in your area?

None have quit yet:

2

Some start-ups or small workover companies:

4

Next six months will see more going under:

1


9. Are any companies delaying payments, if so, what are the terms?

Probably, but not seeing it first-hand:

8

There has been a 60-day addition to what is normal:

1


End Statistical Survey