Synopsis

As the clock ticks toward a recovery in oil prices, time cannot pass fast enough for Eagle Ford well service contractors who identify oil prices as the number one prerequisite for activity to increase.

While crude prices have climbed back into the high $40s, pricing needs another 10% gain on a sustained basis to coax operators back to the field, according to Eagle Ford workover contractors.

Meanwhile, flat activity at very low levels indicates time is running out for financially distressed smaller workover firms. Several won’t make it across the bridge to the recovery.

Eagle Ford workover rig pricing continues to slide, a recurring theme over the last 18 months. The benchmark 500 series C rig is going for $278 an hour on average, down from $311 per hour in March. Pricing varies according to rig configuration, although contractors anticipate pricing is bottoming.

Job mix in the Eagle Ford reflects job mix everywhere. Routine maintenance now accounts for 77% of activity, up from 70% in March. Completions are few and far between. Plugging and abandonment has seen a brief revitalization, but not enough to have a major impact other than a slight increase in topline revenue.

As in all other domestic markets, Eagle Ford operators are only doing the barest of well maintenance, and then only as necessary. Too many rigs, too few jobs—time will tell on when the market recovers.

Watch for the next Heard In The Field report on the Eagle Ford workover/well service market in August.

Part I. – Survey Findings

Among Survey Participants:

  • Well Service Demand Flat Quarter-To-Quarter
    [See Question 1 on Statistical Review]
    ​Respondents said that drilling demand had decreased in 2016, and so had workover and completion work and that demand for workover rigs was flat when comparing second-quarter 2016 with first quarter. Operators are mostly doing only what is absolutely necessary in maintenance.
    • Small Well Service Provider: “One of the things we are focused on, and we have our own swab unit to do so, is some wells that have been shut-in for a year or two. We are seeing some production results and out of the 40 wells tested, we have been able to bring on another 200 barrels of production a week, which is substantial for us and it wasn't making anything for past couple of years. We have put some things back on production.”

 

  • Oil, Gas Price Increases Needed
    [See Question 2 on Statistical Review]
    ​Other than oil and gas prices, respondents said leaseholds and availability of capital would be catalysts in sparking demand. However, seven of the nine respondents said that price was the ultimate determining factor in stoking demand in the Eagle Ford area.
    • Mid-Tier Operator: “Oil prices are the factor and we are starting to see oil prices come up but they are not where they need to be to make a difference.”

 

  • Mergers Expected In Eagle Ford
    [See Question 3 on Statistical Review]
    ​Respondents were mixed about the landscape for mergers. No specific mergers were mentioned, though some respondents said some companies were in discussions. Two said there were more companies on the verge of bankruptcy rather than being in a position to merge with another company.
    • Mid-Tier Operator: “We are not hearing about any mergers but I suspect there will be some. When companies are in bankruptcies—it is hands off until the referees give them permission to sell off assets.”

 

  • Acquisitions Few And Far Between
    [See Question 4 on Statistical Review]
    ​Nearly all of respondents said that they have not heard of any acquisitions and one said that companies generally are not in a position to be buying other companies.
    • Well Service Manager: “It doesn't make sense right now to be thinking of acquisitions because there is no work right now. If everyone is running negative cash flow—why go for more?”

 

  • Necessary Maintenance Only
    [See Question 5 on Statistical Review]
    ​Eight of the nine respondents said that they are almost exclusively working on maintenance projects as drilling has slowed down and most operators are operating on bare bones budgets. One respondent said he is only focused on plugging projects. Routine maintenance now accounts for 77% of all workover work, up from 70% reported in March.
    • Mid-Tier Well Service Manager: “Drilling has slowed to a crawl. The P&A side picked up because everyone is cutting their losses and plugging instead of producing.”

Maintenance

Completion

P&A

Workover

90%

0%

5%

5%

50%

0%

5%

45%

0%

0%

100%

0%

70%

0%

10%

20%

100%

0%

0%

0%

100%

0%

0%

0%

100%

0%

0%

0%

100%

0%

0%

0%

80%

10%

10%

0%

Average 77%

Average 1%

Average 15%

Average 7%

 

  • No Completion Work This Quarter
    [See Question 6 on Statistical Review]
    ​Only one of the nine respondents had done completion work this quarter. The contractor said this work was on one or two wells and both were new. The other eight respondents said that drilling had slowed considerably and so they were not doing any completion work at all.
    • Mid-Tier Well Service Manager: “We have gotten busier. We are working for a client who is plugging old wells and drilling new horizontal wells that are producing 1,200 to 1,500 barrels a day so they can make money at $45.”

 

  • Hourly Rates Down Considerably
    [See Question 7 on Statistical Review]
    ​The hourly rate for the standard size 500 horsepower (hp) series is in the $200 to $350 per hour range, averaging $278 per hour, down again from the average $311 per hour reported in March. See Table I for average hourly rates.
    • Top-Tier Well Service Manager: “We’ve just been running tubing on new completion wells. Our 500-hp rig is going for $300 per hour, which is down $200 from where it was two years ago.”

Table I. – Average Rates For Eagle Ford Workover Rigs

Rig Size (hp)

Average Rate

400 hp series

$235/hour

500 hp series

$278/hour

600 hp series

$260/hour

700 hp series

$300/hour

 

  • Hourly Expected To Be Flat Quarter-To-Quarter
    [See Question 8 on Statistical Review]
    ​Hourly rates are lower than they were last year, but respondents said they have do not expect them to decline further during the next three months because prices are already hovering at or below margin right now.
    • Mid-Tier Operator: “There are stacked assets on the ground and no money to be made domestically or internationally. There is so much excess capacity that we will never see 4,000 rigs running again.”

                                                                             End Survey Findings

Survey Demographics

H A R T E N E R G Y researchers completed interviews with nine industry participants in the workover/well service segment in the Eagle Ford Shale. Participants included three oil and gas operators and six managers with well service companies. Interviews were conducted during mid-May 2016.

Part II. – Statistical Review

Workover/Well Services

[Eagle Ford]

Total Respondents = 9

[Oil and gas operators = 3, Well service companies = 6]

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

Remain the same:

9


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

Price is the most important factor in demand:

7

Lease holds, solvency:

1

Balance sheet, deep pockets:

1


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

None mentioned:

7

More are on the verge of bankruptcy than merging:

2


4. Have there been any workover companies in your area that have been acquired by other workover companies?

None mentioned:

8

Companies are frozen and not merging:

1


5. 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

90%

0%

5%

5%

50%

0%

5%

45%

0%

0%

100%

0%

70%

0%

10%

20%

100%

0%

0%

0%

100%

0%

0%

0%

100%

0%

0%

0%

100%

0%

0%

0%

80%

10%

10%

0%

Average 77%

Average 1%

Average 15%

Average 7%


6. Observing the percentage of completions, how much of the total percentage would be new completion work versus remedial completion (refracking or restimulation) work?

No completion work this quarter:

8

100% of our completion work is new:

1


7. 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

$278/hour

600 hp series

$260/hour

700 hp series

$300/hour

[Rates shown are an average rate among all respondents in the category.]


8. Do you expect workover rig hourly rates to increase, remain the same or decrease over the next three months?

Flat 0%:

9


                                                                             End Statistical Survey