Synopsis

It is tough to be a well services provider in the Eagle Ford Shale as drilling and completion slows again in the wake of the most recent downturn in commodity prices and operators focus on only doing what is necessary to bridge challenging business conditions. With dropping demand, the well services market is characterized by an overcapacity of workover rigs while pricing is delicately poised at cash cost levels after significant declines in the first half of the year. There are some expectations the market could weaken further, which would result in a shake out of smaller, less well-capitalized competitors. Survey respondents quoted hourly rates for the benchmark 500 series rig at $425 per hour, which was up slightly vs. the June market survey. This suggests pricing has flattened for the time being. Watch for the next Eagle Ford well services report in December 2015.

Part I. – Survey Findings

Among Survey Participants:

  • Workover Rig Demand Loses Steam
    [See Question 1 on Statistical Review]
    ​Three respondents said that demand for well service rigs had decreased quarter-over-quarter, while five said it remained the same. All respondents acknowledged that the situation had grown gloomier from when they responded in early June.
    • Mid-Tier Service Provider: “It's as slow as I've ever seen in it in my history of working.”
  • Number Of Rigs Excessive
    [See Question 2 on Statistical Review]
    ​All respondents said there continues to be an excessive amount of rigs in the Eagle Ford area, as operators are seeking ways to control cost and are only doing what work is necessary.
    • Mid-Tier Service Provider: “Demand is down and everything is about to drop like a stone. You cannot make money at these prices and so you are not going to do work.”
  • Well Service Companies Focusing Mainly On Routine Maintenance
    [See Question 3 on Statistical Review]
    ​Among all respondents, routine maintenance on average accounts for 56% of work, as operators focus on only what is necessary in the Eagle Ford area. Completions account for 10%, plug and abandonment (P&A) work accounts for 19% and standard workover jobs account for 15% of all work performed.
    • Mid-Tier Service Provider: “The rate for a plugging rig has been $235/hour for a while, but since that is the only work out here, if more competition does come in, it could drive even that price down.”
  • Workover Rigs Overshadow Use Of Coiled Tubing Units
    [See Question 4 on Statistical Review]
    ​Respondents were mixed about coiled tubing use. Those that used coiled tubing said they do so for specific purposes such as cleaning the sand out of a well or drilling out plugs, but that most well servicing was done with workover rigs. On average 10% of the well service work is with coiled tubing units, while 90% is done with workover rigs.
    • Mid-Tier Service Provider: “We don’t use coiled tubing units on a regular basis. We average about 10-25% coiled tubing, but it's way, way down this year. We used it in fracks and horizontals, but that is way off. It is a small fraction of what it was.”
  • Hourly Rates Stable, but Low
    [See Question 5 on Statistical Review]
    ​The hourly rate for the popular size 500 HP series is $425/hour on average, which reflects the discount contractors are giving in response to the lower oil prices. See Table I for average hourly rates.
    • Mid-Tier Service Provider: “We haven’t seen prices drop further.”

Table I. – Average Rates For Certain Workover Rig Sizes In The Eagleford Area

Rig Size (HP)

Average Rate

400 HP Series

$235/hour

500 HP Series

$425/hour

  • Hourly Rates Expected To Be Flat Quarter-To-Quarter
    [See Question 6 on Statistical Review]
    ​Hourly rates during the next three months are expected to remain flat quarter-to-quarter because of the heavy drop in the first half of the year. Respondents did not think rates would go down further as they are already as low as they can go.
    • Mid-Tier Service Provider: “We haven't seen prices drop further, but that is because there are no bids out there because work has stopped.”
  • No New Competition
    [See Question 7 on Statistical Review]
    ​All respondents said there are no new competitors entering the area under such dire market conditions. Demand for workover rigs has grown more skittish in third-quarter 2015 and there is no reason for other competitors to enter the area.
    • Mid-Tier Service Provider: “A significant number of companies are going to go bankrupt starting with the smaller ones first, but there is an oil company already who just declared Chapter 11 that is financed by a larger oil company.”
  • Strategy Calls For Controlling Costs
    [See Question 8 on Statistical Review]
    Respondents unanimously agreed the only strategy given the lower oil prices is to control costs and to wait it out. Two respondents said there will be a lot of rigs scrapped during this downturn.
  • Many Wells Not Being Completed
    [See Question 9 on Statistical Review]
    All respondents agreed that many wells are not being completed in the Eagle Ford shale area for two reasons. The number of wells being drilled has diminished. Furthermore, many wells that have been drilled recently will not be completed until the oil price recovers, according to respondents.

End Survey Findings

Survey Demographics

H A R T E N E R G Y researchers completed interviews with seven industry participants in the workover/well service segment in the Eagle Ford area. Participants included seven oil and gas operators and one manager with a well service company. Interviews were conducted during mid to late August 2015.

Part II. – Statistical Review

Workover/Well Services

[Eagle Ford Shale]

Total Respondents = 8

[Oil & Gas Operators = 7, Well Service Companies = 1]

1. Do you expect demand for workover rigs to grow, remain the same, or shrink in third-quarter 2015 compared to the second quarter?

Remain the same:

5

Shrink:

3


2. Would you characterize the supply of rigs in your area as excessive, sufficient, or insufficient to meet third-quarter 2015 demand?

Excessive:

8


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

Maintenance

Completion

P&A

Workover

0%

0%

25%

75%

70%

20%

5%

5%

25%

25%

25%

25%

15%

10%

75%

0%

90%

10%

0%

0%

90%

0%

10%

0%

80%

0%

5%

15%

80%

10%

5%

5%

Average 56%

Average 10%

Average 19%

Average 15%


4. For your slate of wells that need remedial work, what percentage calls for coiled tubing units and what percentage calls for workover rigs?

Coiled tubing units:

10%

Workover rigs:

90%


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

400 HP Series

$235/hour

500 HP Series

$425/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 percentage?

Flat (0%):

8

Average:

Flat


7. Have you noticed competitors from other regions entering your area?

No new competitors:

8


8. What strategies are companies putting in place to cope with the low oil prices?

Control costs until oil prices rise:

8


9. What are you seeing in terms of the number of wells being drilled, but not completed?

Hardly any drilling, so very few completions:

8


End Statistical Survey