Synopsis

It remains a stressed market for Eagle Ford contract drillers.

The overall consensus among contractors participating in Hart Energy’s Heard in the Field survey suggests flat demand. However, active rig count in the Eagle Ford has fallen to 29 at the beginning of June from 40 in April.

Nine of those units are active in Karnes County, Texas, while Webb, Dimmitt and Atascosa counties feature two rigs active each.

Among drilling contractors, Helmerich & Payne International Drilling Co., Nabors Industries Ltd. (NYSE: NBR) and Patterson-UTI Energy Inc. (NASDAQ: PTEN) represent about half of employed rigs in the Eagle Ford.

Helmerich & Payne leads Eagle Ford assignments with eight rigs active. Nabors follows with four active rigs, and Patterson-UTI with two.

Marathon Oil Corp. (NYSE: MRO) employed five rigs in the region at the beginning of June, followed by EOG Resources Inc. (NYSE: EOG) with four active.

Contractors report rising commodity prices have not yet reached levels necessary to stimulate demand for local drilling services. Consequently, the volume of drilled but uncompleted wells (DUCs) in the Eagle Ford remains flat after an increase in 2015. There just isn’t enough drilling in the region to add to the DUC backlog.

Eagle Ford drilling contractors expect demand for drilling services may rise this summer as leases acquired during the better times approach expiration dates. Otherwise, low demand levels are reflected in a slight decrease in rig pricing—about $500 per day—over the last 90 days. This follows a $1,500 drop between fourth-quarter 2015 and 2016.

Watch for the next Heard In The Field report on the Eagle Ford drilling market in August 2016.

Part I. – Survey Findings

Among Survey Participants:

  • Eagle Ford Drilling In Holding Pattern
    [See Question 1 on Statistical Review]
    ​The last three months have seen little land drilling and hardly any completions in the Eagle Ford. Operators are in a holding pattern and contractors are on standby. While commodity pricing is improving, it has not increased enough to trigger demand for drilling services. All seven respondents agreed that demand for drilling had remained the same in second-quarter 2016 vs. first quarter.
    • Mid-Tier Operator: “We don't have anything going on right now. We are in a holding pattern, producing what we have, limiting our expenditures. I have heard other people say there were quite a few drilled but uncompleted wells in the Eagle Ford. There are still some because—if it is not a matter of completing the well to hold a lease—then operators are letting the wells sit there not wanting to spend the money on fracking.”
  • Number Of Uncompleted Wells Holding Steady Quarter-To-Quarter
    [See Question 2 on Statistical Review]
    ​The seven respondents agreed that the number of drilled but uncompleted wells has remained the same quarter-to-quarter. While 2015 did see a backlog of DUCs in the Eagle Ford, most operators have cutback severely on drilling projects and so are not adding to the backlog. Meantime, some operators are completing wells when they have to hold leases.
    • Mid-Tier Operator: “I've read about a backlog of uncompleted wells, but I don't see this in my dealings. We are limited in where we are looking industrywide, but we are really not seeing it in the Permian and the eastern Eagle Ford. We watch wells that are going on and they are drilled and completed. Occasionally, there is a lapse, but it’s not like we drill and let them sit for three or four months.”
  • A Rise In Commodity Prices Needed
    [See Question 3 on Statistical Review]
    ​Five of the seven respondents said that oil and gas prices were the main determinant to spark demand in the Eagle Ford area. One said that second to commodity prices is leaseholds as operators might be forced into a drill or lose acreage, given the length of time we have been in a downturn. One said that next to oil prices, a company’s solvency and debt load would be another factor given that oil prices have risen recently.
    • Mid-Tier Operator: “Besides oil prices, the only thing that comes into play are the people who are still solvent and not worried about bankruptcy. Some have high priced acreage that has been acquired and a lot of leases that had a couple of years to run when this all started. Some of those are going to come due and it will be drill or let acreage go. There could be some of that coming up.”
  • No Upswing In Mergers
    [See Question 4 on Statistical Review]
    Three of the seven respondents said that there are fewer mergers happening in the Eagle Ford area than they had expected to see given the length of the downturn. Three respondents said they are seeing more bankruptcies than mergers, and one respondent said that he was expected to see companies begin to merge towards the end of the year.
  • Acquisitions In Discussion
    [See Question 5 on Statistical Review]
    ​There have been few transactions among drilling companies in the Eagle Ford, according to survey respondents. Six of the seven participants in the current survey said they did not know of any acquisitions firsthand in the Eagle Ford area.
    • Mid-Tier Operator: "There are not a lot of acquisitions compared to last year. A few of the bigger guys swallowed up some smaller guys, but this year I haven't heard a lot of that. Instead, everyone is laying off and tightening up for these tough times."
  • Low- To Mid-Teens For Big Rigs
    [See Question 6 on Statistical Review]
    ​Day rates in the Eagle Ford for a 1,500 horsepower (hp) rig range $12,000 to $15,000, depending on rig type, and slightly lower than rig rates recorded in the March report. Rig rate averages given by survey participants can be seen in Table I.
    • Mid-Tier Operator: “Day rates are in the low teens. You can pick a rig up for $14,000 to $15,000. The rig counts keep dropping so the rates are dropping. Contracts are going off and hedges going off. It used to be contractors required three year agreements, but not now.”

Table I – Average Day Rates For Eagle Ford Rigs


Size


AC Power


Diesel/SCR

Conventional
Mechanical

750 hp

$10,000

1,000 hp

$10,000

1,500 hp

$15,000

$14,000

$12,000

2,000 hp

$18,000

[Rates shown are an average ‘per day’ rate among all respondents in the category.]

  • Sluggish Rates Holding
    [See Question 7 on Statistical Review]
    ​Drilling demand has remained depressed in the first half of 2016, so with supply readily available, prices remain under pressure and all respondents expect rates to remain flat for the next three months.
    • Top-Tier Driller: “Drilling has all but stopped in the Eagle Ford. Most operators are just frozen right now.”

End Survey Findings

Survey Demographics

H A R T E N E R G Y researchers completed interviews with seven industry participants in the land drilling segment in the Eagle Ford. Participants included four oil and gas operators and three managers with drilling companies. Interviews were conducted in mid-May 2016.

Part II. – Statistical Review

U.S. Land Drilling

[Eagle Ford]

Total Respondents = 7

[Oil and gas operators = 4, Drilling companies = 3)

1. Do you expect demand for drilling rigs to grow, remain the same, or shrink in second-quarter 2016 compared to first quarter?

Remain the same:

7


2. Are the number of drilled but uncompleted wells (DUCs) increasing, decreasing or remaining the same compared to three months ago?

Flat:

7


3. Besides better oil and gas prices, are there any other catalysts that would help drilling improve? Respondents gave more than one answer.

Price is the ultimate determining factor:

5

Holding leases:

1

No debt, solvency:

1


4. Have there been any drilling companies that have merged together with another drilling company in your area?

Much less merger activity than we expected earlier:

3

No, we mostly see bankruptcies not mergers:

3

Not yet, but think there will be more coming:

1


5. Have there been any drilling companies that have been acquired by other drilling companies in your area?

None mentioned:

7


6. What are the average rig day rates in your area? Is this rate for an AC Power, Diesel-SCR, or Conventional Mechanical type of rig?


Size


AC Power


Diesel/SCR

Conventional
Mechanical

750 hp

$10,000

1,000 hp

$10,000

1,500 hp

$15,000

$14,000

$12,000

2,000 hp

$18,000

[Rates shown are an average ‘per day’ rate among all respondents in the category.]


7. Do you expect rig day rates to increase, remain the same or decrease over the next three months?

Flat:

7

Average:

Flat


End Statistical Survey