Synopsis

Appalachian Basin well service activity continues unchanged after a very slow end to 2015.

Four of the eight respondents in the current survey have shut in operations and will not start back up until commodity prices improve.

Other well servicing firms are operating on maintenance primarily, but at a very slow pace. Contractors say the region needs oil prices above $50 and gas prices above $3 before activity improves.

Routine well maintenance accounts for 65% of job mix in this survey, down from 78% of job mix in October.

A handful of contractors reported a higher percentage of completions—34% in this survey vs. 14% in the October survey. Indeed one workover contractor noted they had been hiring recently to keep up with demand for maintenance work.

Meanwhile, average hourly rates for the benchmark 500 Series C workover unit fell to $241 in early February 2016 vs. $270 in October, 10% decline in 90 days.

All participants in the current survey said hourly rates would not go lower over the next 90 days with several saying they will stack equipment until the market improves.

Watch for the next Heard In The Field report on the Appalachian workover market in May 2016.

Part I. – Survey Findings

Among Survey Participants:

  • Workover Rig Demand Very Slow
    [See Question 1 on Statistical Review]
    ​The demand for well service rigs is very slow in the Marcellus Shale area with all respondents reporting first-quarter 2016 demand has not changed from very low levels recorded in the fourth quarter of 2015. Four respondents said they are shut-in and waiting for prices to pick up before resuming activity. A few workover companies said they continue to operate, albeit at a slow pace.
    • Mid-Tier Well Service Manager: “We continue to focus on maintenance work only.”
  • $50 Oil Would Trigger More Demand
    [See Question 2 on Statistical Review]
    ​Two respondents said that they are working at current oil prices, but six said that oil would need to move back up between the range of $50 to $60 for demand to see an uptick in the area.
    • Mid-Tier Well Service Manager: “The oil price at $30 per barrel is what it costs to get oil out of the ground, but it is going to take $50 per barrel to make a profit.”
  • $3 Gas Price Oil Help Demand
    [See Question 3 on Statistical Review]
    ​Respondents were mixed about what gas prices need to be in order to increase demand. Responses ranged from a low of $3 per thousand cubic foot (Mcf) to $5.50 on the high end, or an average $3.95.
    • Mid-Tier Well Service Manager: “When it's below $2.50, it's too low. It's been under $3 for a while now and companies are not even hedging right now.”
  • Only Necessary Maintenance Being Done
    [See Question 4 on Statistical Review]
    ​Among all respondents, routine maintenance on average accounts for 65% of work, as operators focus on only what is necessary in the Marcellus Shale. Completions account for 34%, plug and abandonment (P&A) work accounts for 1% and workover accounts for 0% of all work performed.
    • Mid-Tier Well Service Manager: “We are pretty active right now and we’re hiring people. For whatever reason, we are busy but a lot of it is focusing on maintenance.”

Maintenance

Completion

P&A

Workover

100%

0%

0%

0%

50%

50%

0%

0%

20%

70%

10%

0%

90%

10%

0%

0%

10%

90%

0%

0%

50%

50%

0%

0%

100%

0%

0%

0%

100%

0%

0%

0%

Average 65%

Average 34%

Average 1%

Average 0%

  • Hourly Rates Vary Depending On Packages
    [See Question 5 on Statistical Review]
    ​The hourly rate for the benchmark 500 HP series C workover unit is $241 per hour on average, down from an average $270 per hour in the October report. See Table I for average hourly rates.
    • Mid-Tier Well Service Manager: “We are still waiting on budgets to come out for 2016. We are basing our budget on what others’ budgets are and nothing has been finalized.”

Table I. – Average Rates For
Marcellus Workover Rigs

Rig Size (HP)

Average Rate

300 HP Series

$173/hour

400 HP Series

$240/hour

500 HP Series

$241/hour

  • Hourly Rates Expected To Be Flat Quarter-To-Quarter
    [See Question 6 on Statistical Review]
    ​During the next three months, all eight respondents said they do not expect hourly rates to go lower than they are currently.
    • Mid-Tier Well Service Manager: “Everyone is just trying to survive even if that means doing nothing until the prices come back.”
  • Several Companies Shut-In, Few Active Well Service Companies Mentioned
    [See Question 7, 8, 9 on Statistical Review]
    Six respondents said that very few well service companies are active and many are shut-in, though not closed permanently. A few of the survey participants said they were in a holding pattern awaiting E&P company budgets to be released. Meanwhile, one respondent each mentioned C & J Energy Services and U.S. Well Services are the most active in the area. None of the respondents mentioned any companies that had left the area or gone out of business.

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 Marcellus Shale. Participants included two oil and gas operators and six managers with well service companies. Interviews were conducted during late January 2016.

Part II. – Statistical Review

Workover/Well Services

[Marcellus Shale]

Total respondents = 8

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

1. Do you expect demand for workover rigs to grow, remain the same, or shrink in the first quarter of 2016 compared to fourth-quarter 2015?

Remain the same:

8


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

$60:

1

$55:

2

$50:

3

Continuing to work at current low price:

1

Gas prices more important to us than oil:

1

Range:

$50-$60


3. What would natural gas prices (per Mcf) have to be for demand for drilling rigs to improve?

$5.50:

1

$4.50:

1

$4:

1

$3.50:

1

$3:

2

Don’t know:

1

$1 in Northern Appalachia not NYMEX price:

1*

Range:

$3-$5.50

Average:

$3.92

*not used in range or average figures


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

Maintenance

Completion

P&A

Workover

100%

0%

0%

0%

50%

50%

0%

0%

20%

70%

10%

0%

90%

10%

0%

0%

10%

90%

0%

0%

50%

50%

0%

0%

100%

0%

0%

0%

100%

0%

0%

0%

Average 65%

Average 34%

Average 1%

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

300 HP Series

$173/hour

400 HP Series

$240/hour

500 HP Series

$241/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 percent?

Flat 0%:

8

Average:

Flat


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

No one is active, most are shut in:

6

C & J Energy Services:

1

U.S. Well Services:

1


8. Are there any workover companies that have left your area?

None mentioned:

8


9. Are there any workover companies that have gone out of business in your area?

Not aware of any:

8


End Statistical Survey