• The Permian oil services market is tightening.
  • A surge in horizontal drilling permits suggests activity will remain strong in first-half 2017.
  • Well stimulation is leading the industry forward.


The brightest star in the Lone Star State is the Permian Basin, which remains the hottest oil service market in the U.S. The Permian Basin has captured 60% of horizontal rig additions off the bottom in second-quarter 2016. In fact, the Permian added more rigs in tight formation plays than all other tight formation plays nationwide combined. And the trend is not finished yet. Horizontal rig count moved up 55 units in the first eight weeks of 2017.

Meanwhile, permits for horizontal wells are accelerating. The Permian recorded 731 horizontal permits in the first two months of 2017, more than the 625 filed in the last four months of 2016.

Those filings illustrate a mature Midland Basin, where operators have advanced on full-field development; rapid maturation in the Delaware Basin, where programs are moving from delineation to optimization in many cases; and full-field development in a few cases.

Among service lines well stimulation is leading the charge. Multiple metrics illustrate how the narrative is unfolding. Regional effective stimulation capacity grew 16% sequentially to start the year and was back above 1.1 million hydraulic horsepower in first-quarter 2017. Crowdsourced data from Hart Energy’s Heard in the Field surveys indicate crew count exceeds 42, up 10% in 90 days and still growing as fracturing spreads rotate into the region or are reactivated “off the fence” to meet expanding E&P demand.

The inventory of drilled but uncompleted wells (DUCs) is a major target for rising completion activity. Permian DUC inventory declined 8% in the first eight weeks of 2017. At the same time E&P companies are completing new wells as drilled, a pad at a time. The convergence of DUCs and new completions is reflected in the jump to 80% in batch completions as a share of total well completions. Batch completions bottomed at 35% in first-quarter 2016 and only rose above 50% in fourth-quarter 2016.

Those crews are spending more time at the well site, which has tightened the market for well stimulation services. Fracturing crews are scheduled well into second-quarter 2017, leading to waiting lists for operators. The reasons are evident in the region’s well metrics. Proppant volume grew 4% to 19.7 million pounds in first-quarter 2017. Although stage count and lateral length were relatively unchanged, spacing between stages continued to decline and is down to 61 m (201 ft) on average vs. 77 m (253 ft) one year ago.

Meanwhile, hybrid gels are making a comeback in the region, mainly on a greater percentage of longer laterals with higher proppant loads. Operators are sending the gel in at the tail end of the stage. But it’s not just well stimulation. Pricing rose 16% sequentially as the market tightened for higher specification drilling rigs. That price increase came on a more modest 5% rise in rig demand, which further illustrates a tightening market for specific rig classes. On a dollar basis rig rates for 1,500 hp AC-VFD Tier I units increased more than $2,000 per day to $17,400 vs. $15,000 per day at year-end 2016.

There is some discussion that the rate of change for rig additions might slow as the industry approaches mid-year 2017. E&P companies scrambled to add the best crews and equipment beginning in late 2016 as confidence grew in the sustainability of commodity prices.

The story line is that operators have accelerated spending on 2017 budgets. That might lead to a pause in the rate of change for service activity growth as the industry rounds the corner on firsthalf 2017, especially if commodity prices fail to advance farther. In the meantime, the stars at night remain big and bright in West Texas.