Synopsis

Workover activity continues its decline in the Appalachian Basin as service providers grapple with an oversupply in rig capacity, the possibility of a decline in future conventional work on the basis of a proposed severance tax in Pennsylvania, and declining capital expenditures for oil and gas work.

The current decline began with the commodity price drop in July, but has gradually worsened.

As in other markets, Marcellus operators are doing only what is necessary to keep wells flowing. Routine maintenance accounts for 78% of job mix among surveyed service providers.

Pricing for workover units has fallen 12% since midsummer though service providers insist, as they did at midsummer, that pricing has bottomed. Some operators have turned to coil tubing because pricing has dropped and the process is faster than a conventional workover rig.

Service providers are using various coping mechanisms to survive the downturn. Some are focusing on retaining the best crews, some are stacking equipment, others are adjusting their job targeting strategies to fit a job mix that is heavily weighted towards maintenance.

A few service providers are noting that work volumes have remained unchanged over the last 90 days.

Watch for the next Appalachian workover report in January 2016.

Part I. – Survey Findings

Among Survey Participants:

  • Well Service Demand Slows
    [See Question 1 on Statistical Review]
    ​Five of the eight respondents said that demand for well services had slowed quarter-to-quarter and three said demand was steady. Demand has worsened from the August report when respondents agreed demand was steady.
    • Mid-Tier Well Service Manager: “It's a lot worse here. I haven't seen anybody moving. There is maintenance going on because they still have some wells running but a bunch have shut down or slowed down.”
  • Number Of Rigs Excessive
    [See Question 2 on Statistical Review]
    The number of rigs available for work in the Marcellus exceeds the demand for rigs. Respondents said operators continue to slow their pace of drilling down, while contractors continue to stack rigs.
    • Mid-Tier Operator: “We are 16 months away from starting to see a turnaround. It is pretty bleak over here. There is going to be a lot of turnover and the state of Pennsylvania is not being kind to us, they are trying to put a severance tax on us here. We will never drill another conventional well.”
  • Well Service Companies Focusing On Maintenance
    [See Question 3 on Statistical Review]
    ​Among all respondents, maintenance on average accounts for 78% of work, as operators focus on only what is necessary in the Marcellus. Completions account for 14%, plug and abandonment (P&A) work accounts for 4% and workover accounts for 4% of all work performed.
    • Mid-Tier Well Service Manager: “It's not grim. We're picking up a little bit because we are focusing on more work on the maintenance side. There’s just a lot of maintenance work and we have focused there. Rates have not dropped in the last four or five months, but we are pretty much at rock bottom. Our goal is to keep our head above water and keep everything clean. We are going after new work and exploring all avenues.”

Maintenance

Completion

P&A

Workover

100%

0%

0%

0%

100%

0%

0%

0%

100%

0%

0%

0%

100%

0%

0%

0%

20%

70%

10%

0%

25%

25%

25%

25%

80%

20%

0%

0%

100%

0%

0%

0%

Average 78%

Average 14%

Average 4%

Average 4%

  • Workover Widely Used Vs. Coiled Tubing
    [See Question 4 on Statistical Review]
    ​One of the eight respondents said they were using coiled tubing 100% of the time, but the majority of the respondents said they use workover rigs 100% of the time.
    • Top-Tier Operator: “We use coiled tubing 100% of the time. We have been that way for a while. We were willing to work with folks and now we are seeing coiled tubing prices lower than workover rigs. We can do coiled tubing in one day where it takes workover rigs three days. It can be the same day rate and save us a lot of money because it is less expensive per hour.”
  • Hourly Rates Weaker Quarter-To-Quarter
    [See Question 5 on Statistical Review]
    ​The hourly rate for the popular 500 HP series rig is $270 per hour on average, which is another decline from the $307 per hour reported in the August report. See Table I for Average Hourly Rates.
    • Mid-Tier Well Service Manager: “We've obviously have had to offer price concessions with our customers, but still staying busy. We are just in the Marcellus and Utica, so we gained market share in 2015 and consider ourselves lucky because we have the best people and best equipment.”

Table I. – Average Rates For
Marcellus Workover Rigs

Rig Size (HP)

Average Rate

200 HP Series:

$100/hour

300 HP Series:

$150/hour

500 HP Series:

$270/hour

  • Hourly Rates Flat
    [See Question 6 on Statistical Review]
    ​While demand was weaker quarter-to-quarter, rates are not expected to drop further in the next three months. However, three months ago, these respondents said rates could not drop further and they did.
    • Mid-Tier Operator: “The well service side is getting hit hard; right now they can't give their services away. No one is drilling.”
  • Competition Thinning In The Marcellus
    [See Question 7 on Statistical Review]
    All eight respondents said that competition has not been a factor as most contractors had dropped their prices as low as they could go.
    • Mid-Tier Well Service Manager: “We have seen competition leaving the area.”
  • Strategy Is To Survive
    [See Question 8 on Statistical Review]
    ​The three respondents who did not see a dip in demand said that their strategy has been to respond to the market and to offer whatever services are in demand, which has been more maintenance than anything else. The other five respondents said that they have slowed or stopped work and plan to survive until demand improves.
    • Top-Tier Operator: “Our strategy is to try to hang on. Various companies are using different approaches to how they are weathering this downturn. Some are stacking here and some have gone to special lengths to keep experienced crews. We are trying to hang onto crews to have the right people if it does turn around.”
  • Completions Have Slowed
    [See Question 9 on Statistical Review]
    ​Respondents were mixed about whether wells are being completed in the Marcellus. One respondent said that some are and some are not. Four respondents said that they are completing every well they are drilling, while three said that there has been no drilling in many months so there has not been much completion work either.
    • Mid-Tier Well Service Manager: “There hasn’t been a well drilled around here since April.”


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 Marcellus Shale area. Participants included four oil and gas operators and four managers with well service companies. Interviews were conducted during mid to late October 2015.

Part II. – Statistical Review

Workover/Well Service Segment

[Marcellus Shale]

Total Respondents = 8

[Oil & Gas Operators = 4, Well Service Companies = 4]

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

Shrink:

5

Remain the same:

3


2. Would you characterize the supply of rigs in your area as excessive, sufficient, or insufficient to meet the first quarter of 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

100%

0%

0%

0%

100%

0%

0%

0%

100%

0%

0%

0%

100%

0%

0%

0%

20%

70%

10%

0%

25%

25%

25%

25%

80%

20%

0%

0%

100%

0%

0%

0%

Average 78%

Average 14%

Average 4%

Average 4%


4. What percentage of work is done by coiled tubing units vs. workover rigs in the Marcellus?

100% workover rigs/0% coiled tubing:

7

100% coiled tubing units/0% workover rigs:

1


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

200 HP Series:

$100/hour

300 HP Series:

$150/hour

500 HP Series:

$270/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? What has been the effect on your fleet's utilization and hourly rates?

No:

8


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

Survive:

5

Be flexible, lower prices:

3


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

Some are completed and some aren’t:

1

All wells are completed:

4

No wells being drilled, so completions slow:

3


End Statistical Survey