Contractors are looking for an increase in demand for 2014 pressure pumping services in the Rockies as activity expands in rapidly developing oil plays. Optimism on improved activity levels comes despite a sharp pull back in activity in dry gas plays such as the Piceance Basin.
Some of the demand increase stems from the evolution from vertical to horizontal drilling as oilier plays transition from delineation work to the optimization phase of unconventional development. Horizontal work involves more stages downhole and features greater service intensity. The transition to vertical adds to demand over and above expanding activity levels as operators delineate several up-and-coming liquids-rich plays in the region.
That said, contractors are less optimistic about pricing improvements in 2014 since there is an adequate supply of well stimulation equipment in the region. Equipment supply is considered excessive in the Piceance as activity winds down in the wake of poor natural gas economics. Well stimulation firms have laid crews off in the Piceance and moved equipment to other more promising areas in the Rockies. Consequently, there is enough capacity in the region to meet demand, even in an expanding activity environment.
Comments about market conditions in the Rockies outside the Bakken originated as part of a Hart Energy survey of oil services contractors in the region. Contractors reported an installed base of 732,600 HHP (hydraulic horsepower) spread among six service providers who are marketing 25 fleets in the Rockies outside the Bakken shale. The installed well stimulation base is about one third lower versus the same period one year ago. Small-tier service providers have vacated areas like the Piceance while larger firms are rotating equipment out of dry gas plays into oilier areas both in the Rockies and in other regional markets.
Contractors report the average cost per stage ranges from $30,000 on vertical wells to $53,750 for horizontal work. The drilling mix in the region has re-polarized from 75% natural gas-directed previously to 75% oil-directed currently, survey participants said.
A separate survey of well servicing contractors also revealed expectations for rising activity in 2014. However, optimism here came with a note of caution regarding oil prices. Oil prices at present levels would lead to an expansion in work, according to well service contractors, while a decline in commodity prices would adversely impact demand.
Well service contractors noted they had received positive comments regarding 2014 budgets and increased work flow from many of their E&P customers.
Contractors reported a sufficient supply of well servicing equipment in the region with some capacity stacked out. The main issue for contractors, according to survey participants, is labor. Crews have left the well services sector for better paying employment in other segments of the oil services industry, or have moved to the Bakken where wages are higher for well servicing firms. A number of experienced hands have gone to work for customers as consultants.
Well service contractors noted that coil tubing is making inroads in the Rockies outside the Bakken, though workover rigs continue to gain the greater share in an expanding market. Hurdles facing coil tubing include pricing, which is much more expensive than a workover rig even when considering the enhanced performance capabilities of coil tubing units, and the fact that laterals are getting longer and coil tubing is less effective drilling out stages at some of the extended laterals that operators are now drilling in the Rockies.
The survey found hourly rates for workover rigs at about $1 per unit of horsepower, or $300 to $500, depending on whether the rig was a 300, 400, or 500 horsepower unit.
Contact the author, Richard Mason, at rmason@hartenergy.com
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