Synopsis

The Marcellus drilling market remains the second hardest hit domestically after the Bakken Shale.

Activity is down more than 80% from the peak in October 2014. The region is still shedding rigs at the rate of one or two per week, although Ohio’s Utica Shale remains steady in rig count.

In fact, Marcellus drilling remains at such low levels that there has been little increase in the volume of drilled but uncompleted wells (DUCs) with operators opting to complete the low number of drilled wells at discounts of 70% in service costs.

More drillers have suspended operations in the wake of low demand. Several respondents in the current Hart Energy survey expect to see consolidation in the drilling market by year-end.

Meanwhile, rig rates appear to have stabilized with the benchmark 1,500 horsepower (hp) AC-VFD Tier I unit going for $15,000 per day.

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

Part I. – Survey Findings

Among Survey Participants:

  • Depressed Drilling Demand
    [See Question 1 on Statistical Review]
    ​Although demand for land drilling rigs did not decline in the last quarter, it has remained lackluster. One top operator said they do not have drilling slated in the Marcellus Shale area for two years. A mid-tier operator said that demand for drilling is “pretty dead” right now in the area.
    • Top-Tier Operator: “We're still holding at reduced capacity, at the 25% mark. The forecast is the same; we are trying to maintain what we have. There is not a lot of opportunity for new developments.”
  • DUC Wells Holding Steady Quarter-To-Quarter
    [See Question 2 on Statistical Review]
    ​All eight respondents said that drilled but uncompleted wells had not increased in the first quarter of 2016. Respondents said that drilling is slow, so there is not a buildup of uncompleted wells. Instead companies are working through the backlog of 2015.
    • Top-Tier Driller: “People are still fracking their wells in the Marcellus; we are not building up a backlog. Right now, for a lot of these companies, if you have cash why wouldn't you frack at 60% to 70% discounted costs?”
  • Waiting On Oil, Gas Prices To Rise
    [See Question 3 on Statistical Review]
    ​Four of the eight respondents said that the true catalyst for a turnaround in the Marcellus Shale would be an increase in oil and gas prices. Other catalysts such as owning your own capital, having no debt, diminished reserves and decreasing the number of uncompleted wells were all cited as well.
    • Mid-Tier Driller: “There is an abundance of reserves. That is one area that is definitely hitting us.”
  • Mergers Expected In Second-Half 2016
    [See Question 4 on Statistical Review]
    Four of the respondents said they had not heard of any mergers or proposed mergers among drilling companies yet. Two respondents said that they expect we would see more mergers at the end of 2016 into 2017. One respondent said that companies were just shutting in rather than merging and another said that trend would happen more between well service companies rather than drillers.
    • Mid-Tier Driller: “I haven't heard of any mergers recently and I think the main culprit is the way the market is right now. They don't want to take on that debt to purchase with the bleak forecast. Now is the opportunity side but the risk side is not there.”
  • Acquisitions Likely In Coming Months
    [See Question 5 on Statistical Review]
    ​Respondents did not name any companies that had acquired others, instead one respondent said that he was hearing more about companies acquiring equipment piecemeal from ailing companies.
    • Top-Tier Driller: “I haven’t seen any companies merged or be acquired yet. There is some chatter about more acquisitions ramping up in first-quarter 2017.”
  • Rigs At Rest In The Marcellus
    [See Question 6 on Statistical Review]
    Day rates in the Marcellus Shale for a 1,500 hp AC rig average between $14,000 to $18,000, with the high-end representing rigs that have been on long-term contract and with full packages. Rig rate averages given by survey participants can be seen in Table I below.
    • Mid-Tier Driller: “We are getting to a point of keeping rigs working to keep personnel, which is the most valuable asset to retain in this situation. If you are not losing money then it's not a bad thing.”

Table I – Average Day Rates For Marcellus Rigs

Size


AC Power


Diesel/SCR

Conventional
Mechanical

750 hp

$12,500

$10,500

1,000 hp

$14,000

$13,000

$11,500

1,500 hp

$15,000

$14,400

$13,000

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

  • Rig Rates Soft And Steady
    [See Question 7 on Statistical Review]
    ​Rig rates for land drilling rigs have been squeezed to the break-even point or less in the Marcellus Shale area. Most drilling managers say that rates cannot go any lower than they are right now and therefore rates are not expected to drop again during the next three months. Operators are not looking for rates to drop in order to begin drilling. Instead, they are focused on oil and gas prices to increase.
    • Mid-Tier Driller: “This is what despair looks like.”

End Survey Findings

Survey Demographics

H A R T E N E R G Y researchers completed interviews with eight industry participants in the land drilling segment in the Marcellus Shale. Participants included four oil and gas operators and four managers with drilling companies. Interviews were conducted in late April 2016

Part II. – Statistical Review

U.S. Land Drilling

[Marcellus Shale]

Total Respondents = 8

[Oil and gas operators = 4, Drilling companies = 4]

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

Remain the same:

8


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

Flat:

8


3. Besides better oil and gas prices, are there any other catalysts that would help drilling improve?

Better price is only factor:

4

No debt:

1

Capital infusion:

1

Working through remaining uncompleted wells:

1

Diminished reserves:

1


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

Not sure:

4

More mergers likely at year’s end and into 2017:

2

Companies shutting down not merging:

1

More from well service not drilling companies:

1


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

Don’t know yet:

6

Will see a lot of this but no name comes to mind:

1

Companies acquiring equipment:

1


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

$12,500

$10,500

1,000 hp

$14,000

$13,000

$11,500

1,500 hp

$15,000

$14,400

$13,000

[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? By what percent?

Flat (0%):

8

Average:

Flat


End Statistical Survey