Synopsis

Williston Basin workover contractors await recovery in completion activity as commodity prices rebound, although current demand for well servicing has stalled year-to-date.

The “when” of the recovery remains the $64,000 question.

According to participants in Hart Energy’s Heard in the Field survey, it may take a presidential election, a thaw in frozen energy lending, or commodity prices at a level that entices operators to hack away at a rising inventory of drilled but uncompleted wells (DUCs).

The DUC inventory grew modestly in March to 920 with less than 60 wells completed, according to the North Dakota Industrial Commission.

Completions are at half the rate vs. 2015. Efforts to cut down the volume of DUCS, when it begins, will soon bump into the reality that there are not enough frack crews in the Bakken to meet demand.

Virtually all work reported among workover survey participants was for routine maintenance, up from 84% reported in February. Routine maintenance accounted for less than 30% of job mix at peak in November 2014.

Meanwhile, tough market conditions have resulted in increased bankruptcies among workover service providers. Although there has been discussion of mergers or acquisitions, none have taken place. However, service providers are getting calls about selling equipment.

Is the Bakken workover market bottoming? Despite stagnant demand, pricing suggests the floor may be at hand.

Hourly rates for the benchmark 500 series C unit have stabilized in the $330 to $340 per hour level. Rates for a similarly configured rig peaked at $525 in November 2014.

Watch for the next Heard In The Field report on the Bakken workover/well service market in August 2016.

Part I. – Survey Findings

Among Survey Participants:

  • Lull In Workover Rig Demand Quarter-To-Quarter
    [See Question 1 on Statistical Review]
    ​All eight respondents said that workover demand has stalled quarter-to-quarter and operators are cutting costs, labor and only spending to maintain wells that are absolutely necessary in this low price environment.
    • Mid-Tier Operator: “Completion activity will recover much quicker than drilling and people will be fracking and completing the 1,250 uncompleted wells in North Dakota.

 

  • Oil, Gas Prices Key Catalyst
    [See Question 2 on Statistical Review]
    ​Other than oil and gas prices, respondents gave various other reasons that could help demand for well services in the Bakken. One respondent said banks could start lending money again while others said finishing uncompleted wells could help the workover market improve. One respondent said that the elections had to be over before anything would start happening.
    • Mid-Tier Operator: “Even if price went to $100 per barrel for oil, you don't have any frack crews available to complete all the wells that need fracking.”

 

  • Merger Activity Not On The Boards Currently
    [See Question 3 on Statistical Review]
    ​Four of the respondents have not heard of any workover companies merging. Another three said they hear of unconfirmed mergers in the rumor mill and another said there are more bankruptcies than merger activity.
    • Mid-Tier Well Service Manager: “We’re seeing a lot of bankruptcies not mergers.”

 

  • Company Acquisitions Few And Far Between
    [See Question 4 on Statistical Review]
    ​Six of the respondents said that they had not heard of any companies being acquired. One said there have been a lot of inquiries for equipment, but not full company acquisitions yet. Another said there had been some, but did not name any companies. This respondent expects more to come. 
    • Mid-Tier Well Service Manager: “We are getting a lot of inquiries about equipment. We get called about that all the time, but not about companies acquiring other companies.”

 

  • Necessary Maintenance Only
    [See Question 5 on Statistical Review]
    All eight respondents said that well service work has focused on necessary maintenance and little else in the Bakken Shale area. About 99% of all work is maintenance related only to what is necessary to keep a well producing, up considerably from the 84% routine maintenance ratio reported in February.

 

  • No Completion Work This Quarter
    [See Question 6 on Statistical Review]
    None of the eight respondents has done any completion work in the last three months. One respondent said that fracking crews had dwindled in the Bakken area and expressed concern that it would be hard to get the fracking crews up and running when price did return.

Maintenance

Completion

P&A

Workover

90%

0%

0%

10%

100%

0%

0%

0%

100%

0%

0%

0%

100%

0%

0%

0%

100%

0%

0%

0%

100%

0%

0%

0%

100%

0%

0%

0%

100%

0%

0%

0%

Average 99%

Average 0%

Average 0%

Average 1%

 

  • Hourly Rates Vary
    [See Question 7 on Statistical Review]
    ​The hourly rate for the benchmark 500 horsepower (hp) series C workover unit is in the $330 per hour to $340 per hour range, about the same as the February report. See Table I for average hourly rates.
    • Mid-Tier Operator: “It is very slow here right now. No one is drilling and so there is very little well service work—only ‘bare bones’ maintenance.”

Table I. – Average Rates For
Bakken Workover Rigs

Rig Size (hp)

Average Rate

300 hp series

$190/hour

400 hp series

$250/hour

500 hp series

$336/hour

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

 

  • Hourly Rates 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 do not expect them to decline during the next three months because prices are already hovering at or below margin right now.

                                                                     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 Bakken shale area. Participants included four oil and gas operators and four managers with well service companies. Interviews were conducted during early May 2016.

Part II. – Statistical Review

Workover/Well Services

[Bakken Shale]

Total Respondents = 8

[Oil and gas operators = 4, Well service companies = 4]

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:

8


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

Price is the key factor:

3

Finish uncompleted well inventory:

3

Banks to start lending:

1

Elections to be over:

1


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

None that I know of, yet:

4

Hear rumors but don’t know first-hand:

3

Seeing more bankruptcies than M&A:

1


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

None that I know of, yet:

6

Some, but a lot more aggregation will happen:

1

A lot of inquiries about equipment, but not entire company sales:

1


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

Maintenance

Completion

P&A

Workover

90%

0%

0%

10%

100%

0%

0%

0%

100%

0%

0%

0%

100%

0%

0%

0%

100%

0%

0%

0%

100%

0%

0%

0%

100%

0%

0%

0%

100%

0%

0%

0%

Average 99%

Average 0%

Average 0%

Average 1%


6. Observing the percentage of completions, how much of the total percentage would is new completion work vs. remedial completion work?

No completion work this quarter:

8


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

300 hp series

$190/hour

400 hp series

$250/hour

500 hp series

$336/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%):

8


                                                                     End Statistical Survey