Synopsis

Until commodity prices recover, activity levels will remain “Rip Van Winkle”-like in the Marcellus Shale.

The industry is in a deep slumber. When it awakens, attention will turn to an estimated 500 drilled but uncompleted wells (DUCs) before addressing the market in general.

Commodity prices have become the number one determinant on demand for oilfield services and especially so for workover contractors, according to participants in Hart Energy’s Heard In The Field survey.

Meanwhile, workover capacity is exiting the region.

The small volume of work underway is overwhelmingly weighted to routine maintenance, and then only when absolutely needed.

Workover pricing appears to have stabilized in 2016 with the benchmark 500 C series rig going for $235 an hour.

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

Part I. – Survey Findings

Among Survey Participants:

  • Well Services Follow Sluggish Drilling Demand
    [See Question 1 on Statistical Review]
    ​Survey respondents said most operators are not drilling, completing or fracking and basically not doing any work outside of necessary maintenance. Consequently, demand for workover services is likely to remain flat second-quarter 2016 compared with the first quarter. One operator said that until the DUCs were addressed, demand would not pick up.
    • Mid-Tier Operator: “The big thing to think about is drilled but uncompleted wells. You likely won’t be able to track the uptick in activity by rig count anymore because there are 500 drilled but uncompleted wells in Appalachia. They will complete wells before they pick a rig up to drill new ones
  • Better Oil, Gas Prices A “Must” Before Activity Picks-Up
    [See Question 2 on Statistical Review]
    ​Five of the eight respondents said that oil and gas prices were the single largest catalyst affecting demand for well services in the Marcellus Shale area. One said that if companies had their own capital they could work independent of commodity prices; another said if a company had no debt they could order more services. One respondent said that even if companies had money and no debt, there is a backlog of uncompleted wells for operators to address before workover demand would pick up.
    • Mid-Tier Well Service Manager: “We are just waiting for the price to come back for demand to pick up. The price of oil is the key; there is no other catalyst. Don't look for gas to come back for a long time.”
  • M&A Activity At A Minimum
    [See Question 3 on Statistical Review]
    ​Seven respondents said they have not seen any mergers in the Marcellus Shale area and one said that companies were picking up and moving out of the area rather than merge.
    • Mid-Tier Operator: “We are seeing a lot of well service companies picking up and moving out from majors to independents. I'm sure there will be mergers, but don’t know of any yet.”
  • Few Acquisitions Occurring
    [See Question 4 on Statistical Review]
    ​Seven respondents said that they have not seen any companies being acquired by other companies and one respondent said that small companies were acquiring pieces of other companies.
    • Top-Tier Operator: “Companies are looking for opportunities, but so far I don’t know of any well service companies that have been acquired around here.”
  • 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 Marcellus Shale area. Routine maintenance accounts for 93% of all work performed, up from 65% reported in February.
    • Mid-Tier Well Service Manager: “There is no activity and there won’t be until oil and gas prices come back.”

Maintenance

Completion

P&A

Workover

100%

0%

0%

0%

100%

0%

0%

0%

100%

0%

0%

0%

80%

20%

0%

0%

100%

0%

0%

0%

80%

20%

0%

0%

90%

10%

0%

0%

100%

0%

0%

0%

Average 93%

Average 7%

Average 0%

Average 0%

  • Very Little Completion Work
    [See Question 6 on Statistical Review]
    ​Two of the eight respondents said that the completion work they have done recently has been 100% new completions and no refracks, while six said that no completions were done in the last three months.
    • Mid-Tier Well Service Manager: “Contractors have a backlog of wells that need to be completed, but it’s a backlog from 2015 and it has not gotten worse.”
  • Hourly Rates Vary
    [See Question 7 on Statistical Review]
    The hourly rate for the standard size 500 horsepower (hp) series is in the $150 to $300 per hour range among all respondents, slightly lower than $241 reported in February. See Table I for average hourly rates.

Table I. – Average Rates For Marcellus Workover Rigs

Rig Size (hp)

Average Hourly Rate

300 hp series

$175

400 hp series (full package)

$212

500 hp series

$235

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

  • Hourly Rates Flat
    [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 further during the next three months because prices are already hovering at or below margin right now.
    • Mid-Tier Operator: “Things are not wonderful for us right now. We are looking for work and cutting costs.”

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 five oil and gas operators and three managers with well service companies. Interviews were conducted during late April 2016.

Part II. – Statistical Review

Workover/Well Services

[Marcellus 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 drilling improve?

Price is the key factor:

5

Capital:

1

No debt:

1

Finish uncompleted well inventory:

1


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

None that I know of yet:

7

Moving out of area, but not merging:

1


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

Not sure:

7

Smaller companies may be doing this:

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

100%

0%

0%

0%

100%

0%

0%

0%

100%

0%

0%

0%

80%

20%

0%

0%

100%

0%

0%

0%

80%

20%

0%

0%

90%

10%

0%

0%

100%

0%

0%

0%

Average 93%

Average 7%

Average 0%

Average 0%


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

100% new completions:

2

No completion work of any type this quarter:

6


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 Hourly Rate

300 hp series

$175

400 hp series (full package)

$212

500 hp series

$235

[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