There is rising optimism about a natural gas market recovery in Appalachia, though operators are still in “wait and see” mode. In this case, it still means waiting on demand for pressure pumping services to increase.
A majority of participants in Hart Energy’s Heard in the Field survey see activity flat at reduced levels while the remainder note demand for well stimulation services is still weakening. There is some noise in whether the volume of drilled but uncompleted wells (DUCs) have stayed flat over the last 90 days or increased by 10% to 15%.
If DUCs are increasing, it is due primarily to the major issue facing the region: lagging midstream infrastructure buildout to get copious natural gas out of the field and into the market. As that infrastructure comes online, operators will eat away at the inventory of uncompleted wells.
Appalachian service providers say the industry can complete DUCs at the rate of 7.5 days per well and can accelerate that schedule by up to 30% if multiple wells are brought online together via batch completions.
Regional pressure pumping capacity fell incrementally to 731,000 in hydraulic horsepower (hhp) over the last 90 days although regional crew count remains unchanged at about 30.
Reported pricing on a per stage basis is $41,500, mostly unchanged over the last 90 days. Operators are favoring longer laterals, with the average moving up to 8,200 feet from 7,400 feet in the February report. Stage count rose to 41 vs. 36 in the previous regional survey.
Service providers project well stimulation prices will rise quickly once commodity prices recover.
Part I. – Survey Findings
Among Survey Participants:
- Demand Flat to Down Quarter-To-Quarter
[See Question 1 on Statistical Review]
Five of eight respondents said that second-quarter 2016 demand is remaining steady at current reduced levels until the price of gas rebounds and additional pipeline capacity comes on line. The remaining three respondents said demand has diminished compared to first-quarter 2016.
- Mid-Tier Service Provider: “I believe demand has finally stabilized and we will see very gradual improvement if the price of gas increases.”
- DUCs May Be Stabilizing
Five of eight respondents report the number of DUCs has remained the same as three months ago. However, three respondents said DUCs have increased by 10% to 15% quarter-to-quarter as operators await pipeline capacity and gas price increases.
- Top-Tier Service Provider: “We see operators who would increase activity immediately as [gas] prices creep up, but they are waiting for more pipeline capacity to come online.”
- Higher Oil, Gas Prices Needed To Lower DUC Backlog
[See Question 2 on Statistical Review]
Among respondents, an average oil price of $52 and an average natural gas price of $3.19 would be required for fracking demand to increase and new wells to be drilled.
- Mid-Tier Service Provider: “Everyone in the Marcellus will be glad to see increased gas prices and there will be an increase in activity when it does. But, more pipelines are needed in the upper Marcellus in New York and northern Pennsylvania before the situation improves much.”
- Operators Strategize Timing For DUC Completions
[See Question 4a and 4b on Statistical Review]
Among respondents, the time to complete a DUC well averages 7.5 days. Utilizing a multiwell zipper frack approach to those completions can possibly reduce the time per well by as much as 30% according to survey participants.
- Mid-Tier Service Provider: “We don’t see any problem completing these DUC wells in seven days. If we do multiwell zipper fracks, it can save 15% to 20% on completion time.”
- HHP Capacity Remains Fairly Stable Quarter-To-Quarter
[See Question 5 and 6 on Statistical Review]
Average estimated hydraulic horsepower in the region remains about 731,000 hhp, down slightly from the 750,000 hhp estimated in January. Total crews left in the area are estimated at 31, similar to January’s findings.
- Marcellus Well Metrics: Vertical Depth Ranges ~7,000 Feet, Laterals Average ~8,200 Feet
[See Question 7 on Statistical Review]
Average vertical depth reported is 7,000 feet across the Marcellus. Average horizontal lateral length is 8,187 feet. Average number of stages is 41. Injection rates average 73 barrels per minute with about six stages completed daily on a 24-hour schedule.
- Average Cost Per Stage ~$41,500
[See Question 8 and 9 on Statistical Review]
The average per stage price is reported at $41,500, about the same as it was in January. Fracking service pricing is expected to remain stable for the next three months or until natural gas prices rise and demand for fracking increases.
- Mid-Tier Service Provider: “Fracking prices remain at current rates, but only until we see gas prices and pipeline capacity improve. Prices will rise quickly with increased demand.”
End Survey Findings
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 shale area. Participants included six managers or sales personnel with well service companies, and two completions managers or consultants working for E&P companies. Interviews were conducted during the last week of April 2016.
Part II. – Statistical Review
Well Stimulation/Pressure Pumping
Total Respondents = 8
[Fracking service providers = 6, Operators = 2]
1. Do you expect demand for pressure pumping equipment to grow, remain the same or shrink second-quarter 2016 compared to the first quarter?
Remain the same:
2. Are the number of Drilled but Uncompleted wells increasing, decreasing or remaining the same compared with three months ago?
Remain the same:
Increased by 10% to 15%:
3. What oil price (per barrel) and what natural gas price (per thousand cubic foot) is needed for demand for fracking services to improve?
4a. In the Marcellus formation, how long does it take to bring a DUC online online on average?
4b. Does the time to bring a DUC online differ between wells drilled on a pad vs. a single well?
Yes, but no estimated percent:
Zipper fracks take 30% less time than solo wells:
5. In your estimation, what is the total hhp in your area?
500,000-1 million hhp:
6. How many total crews (spreads) do you estimate are active in the area?
7. 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:
Average horizontal lateral length:
Average number of frack stages:
Injection rates (barrels per minute):
Average number of frack stages per day:
12-hour or 24-hour:
How much hhp required to frack a well:
8. What is the average cost per stage in your area now?
Average cost per stage:
~$41,500 per stage
9. Do you expect fracking prices to increase, remain the same, or decrease over the next three months?
Remain the same: