Synopsis

Very slow, but steady: That’s the word for the workover sector in the Eagle Ford Shale.

A consensus seems to be developing on the commodity price deck necessary as a trigger point for increased work across the board. As in most other markets, that price estimate ranges from $40 to $60 in the Eagle Ford with the sweet spot estimate at $50 oil.

The important part about the price point is that it is sustained rather than intermittent. Both contractors and operators in most markets nationwide identify the sweet spot for activity expansion in the $50 to $55 range.

With low work volumes, contractors are reporting a majority of job mix is focused solely on routine maintenance, and then done only as necessary. This is a sharp jump from the 56% reported in December, but brings the Eagle Ford into alignment with most other domestic markets on the workover front.

Hourly pricing for the benchmark 500 series C workover unit fell 13% over the last 90 days to average $311 per hour. In December, contractors projected pricing would not drop much farther.

A price war appears to be underway, according to contractors participating in the Hart Energy survey, with some of the smallest privately-held operators working as cheaply as possible to get whatever work they can to hold on.

Meanwhile, several privately-held workover contractors claim the bigger public companies are the ones cutting pricing. There were fewer reports of contractors suspending operations in the Eagle Ford than have been found in other plays.

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

Part I. – Survey Findings

Among Survey Participants:

  • Demand For Workover Rigs Remains Under Pressure
    [See Question 1 on Statistical Review]
    All respondents said that first-quarter 2016 workover demand had remained steady, but low compared to the fourth quarter of 2015. In addition, four said that they are steadily working in an adverse environment. One of the four is in a holding pattern as the company continues to work through Chapter 11 bankruptcy proceedings and expects to pick up activity in the second half of 2016.
  • Average $50 Oil Needed For Well Service Demand To Improve
    [See Question 2 on Statistical Review]
    ​Respondents were mixed on what the price per barrel oil would need to be to get the area moving again. Among the eight respondents, oil prices at an average $50 oil would be the trigger point for increased work across the board with responses ranging from $40 to $60. One of the eight respondents said it does not matter what the oil price is as long as it is steady because the fluctuation in prices has been a de-motivator.
    • Mid-Tier Well Service Manager: “Last year the industry said the price per barrel of oil would have to be $45 to pick up demand, but this year you hear $60. I think it is because the hedges are rolling off and the financial burden is getting heavier. Because we had debt we were hoping last year for $60 and now $45 for us with no debt would be good.”
  • Natural Gas Prices Have Little Impact On Eagle Ford
    [See Question 3 on Statistical Review]
    ​Natural gas prices averaging $3.15 per thousand cubic feet (Mcf) could help spur more workover activity, though most respondents agreed that natural gas was not the driving commodity behind the Eagle Ford Shale play. Six of the eight respondents said that an improvement would be seen all around if gas would be in the range of $2.25 to $4, while two said they were not sure.
    • Mid-Tier Well Service Manager: “We're a little more gas heavy than a lot of companies so we are focusing on the price. We are okay at $2.25, but it would not be too bad at $2.50. At $3—we'd be great.”
  • Essential Maintenance Keeps Companies Afloat
    [See Question 4 on Statistical Review]
    ​Among all respondents, routine maintenance on average accounts for 70% of work, as operators focus on only what is necessary in the Eagle Ford. Completions account for 10%, plug and abandonment (P&A) work accounts for 12%, and standard workovers account for 8% of all work performed.
    • Mid-Tier Operator: “Most of the smaller independents who might be drilling are not going to complete wells until we see better pricing.”

Maintenance

Completion

P&A

Workover

0%

0%

100%

0%

75%

0%

0%

25%

50%

10%

0%

40%

90%

6%

0%

4%

50%

50%

0%

0%

95%

5%

0%

0%

100%

0%

0%

0%

100%

0%

0%

0%

Average 70%

Average 10%

Average 12%

Average 8%

  • Hourly Rates Slip
    [See Question 5 on Statistical Review]
    ​The hourly rate for the popular size 500 horsepower (hp) series is $311 per hour on average among all respondents, down from an average $358/hour in December. See Table I for average hourly rates.
    • Top-Tier Well Service Manager: “We are hearing an average of $300 per hour but it really depends on what kind of package. It could be a base of anywhere from $135 to $200, but add-ons could make it average $300.”

Table I. – Average Rates For
Eagle Ford Workover Rigs

Rig Size (hp)

Average Rate

400 hp series

$235/hour

500 hp series

$311/hour

  • Hourly Rates Flat To Down
    [See Question 6 on Statistical Review]
    ​Seven of eight respondents expect no change in pricing during the next three months as prices are at the bottom, but one predicts prices will go down another 10%.
    • Mid-Tier Operator: “Prices are still moving down on workover rigs. Prices are down 25% from where they were a year ago.”
  • Most Workover Companies Are In A Holding Pattern
    [See Question 7 on Statistical Review]
    ​Seven of the eight respondents are focused on maintenance well service work and are holding steady with low work activity and one has found steady work for his plugging business.
    • Top-Tier Well Service Manager: “We are doing mostly maintenance work. We did a couple of completions, hit and run, here and there but that’s it. We are trying to hang on.”
  • Small Workover Companies At Risk
    [See Question 8 on Statistical Review]
    ​Seven of the eight respondents said that so far they have not heard of any well services companies leaving the area, but all seven said that some companies are very fragile right now and it is yet to be determined who will still be operating in the Eagle Ford by mid-year. One respondent said he had heard that some small operators and over-leveraged operators will be leaving the area.
    • Mid-Tier Well Service Manager: “Some are leaving, but the big guys will be okay. I’ve heard some small operators are shutting down and some really leveraged operators might shut down.”
  • Majors Slowing As Smaller Contractors Compete
    [See Question 9 on Statistical Review]
    ​All respondents said that most companies are hanging on even though it is tough going in the Eagle Ford right now. Two respondents said that smaller contractors are competing heavily in an effort to stay in business.
    • Top-Tier Well Service Manager: “There is a rumor about some companies going under but I haven't seen it yet. All the big ones are hurting and the ‘mom and pop’ companies are giving the work away, which is hurting us. We can't compete.”

End Survey Findings

Survey Demographics

H A R T E N E R G Y researchers completed interviews with eight industry participants in the workover/well service segment in the Eagle Ford shale area. Participants included five oil and gas operators and three managers with a well service company. Interviews were conducted during February 2016.

Part II. – Statistical Review

Workover/Well Services

[Eagle Ford Shale]

Total respondents = 8

[Oil and gas operators = 5, Well service companies = 3]

1. Do you expect demand for workover rigs to grow, remain the same, or shrink in first-quarter 2016 compared to the fourth quarter of 2015?

Remain the same:

8


2. What would oil prices have to be for demand for workover rigs to improve?

$40:

2

$45:

1

$50:

2

$55:

2

$60:

1

Average:

~$50


3. What would gas prices have to be for demand for workover rigs to improve?

$2.25:

1

$2.50:

1

$3:

1

$3.50:

2

$4:

1

No idea:

2

Average:

~$3.15


4. Looking at your slate of well service work, how much of it is workover vs. routine maintenance vs. plug and abandonment (P&A) vs. completion work?

Maintenance

Completion

P&A

Workover

0%

0%

100%

0%

75%

0%

0%

25%

50%

10%

0%

40%

90%

6%

0%

4%

50%

50%

0%

0%

95%

5%

0%

0%

100%

0%

0%

0%

100%

0%

0%

0%

Average 70%

Average 10%

Average 12%

Average 8%


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

$311/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?

Decrease 10%:

1

Flat 0%:

7

Average:

Flat to down slightly


7. Which workover companies are the most active in your area during the downturn?

Holding pattern:

6

Not sure:

2


8. Are there any workover companies that have left your area?

None have left yet:

6

Some small companies:

2


9. Are there any workover companies that have gone out of business in your area?

None mentioned:

6

Some small companies:

2


End Statistical Survey