Synopsis

Rising commodity prices are encouraging operators to venture back into the workover market in the Greater Rockies, or the Rocky Mountain market outside the Bakken Shale.

The increase in oil prices early July have prompted greater activity in the Uinta Basin and Niorbrara Shale northeast of Denver in particular, according to Hart Energy’s Heard In The Field survey.

Oil has since dropped due to an ongoing oversupply of crude and refined products. West Texas Intermediate crude futures were trading around $41 early on July 29, with Brent close behind at about $42.

Operators are doing remedial work on wells previously shut-in because of low oil prices. Rod and tubing work make up 87% of job mix among survey respondents.

Activity still remains low region-wide and less than half of survey respondents had been involved in a completion over the last 90 days.

Drilling remains sporadic outside the Denver-Julesburg Basin though some wildcats are underway in the North Park and Powder River basins.

Hourly rates were stable at an average $247 for the benchmark 500 series C workover unit. However, workover contractors expect rates to remain flat for the remainder of 2016, pending an increase in oil prices.

Watch for the next Heard In The Field report on the Greater Rockies workover/well service market in December.

Part I. – Survey Findings

Among Survey Participants:

  • Workover Demand Shows Slight Upward Change Quarter-To-Quarter
    [See Question 1 on Statistical Review]
    ​Two of the eight respondents said that they had seen a slight uptick in demand during the past three months, while six respondents said that demand was slow but steady. Of the two who said demand had picked up, the key catalyst has been oil prices hovering around $50 that has driven it.
    • Mid-Tier Well Service Manager: “It's picked up in the last two to three weeks. It's oil price driven. I don't think it is price driven because of the workover rates. The oil prices came up and so the wells that were shut in are now getting attention.”

 

  • Oil, Gas Prices Key Catalysts
    [See Question 2 on Statistical Review]
    ​All eight respondents said that oil and gas prices were key to demand coming back in the Rocky Mountain region.
    • Mid-Tier Well Service Manager: “What is going to get demand up are higher oil prices, but also stability. Operators want to see the price stay up and not go down to get comfortable with ordering work again.”

 

  • Other Rockies Mergers, Acquisitions Muted
    [See Question 3 and 4 on Statistical Review]
    ​All of the respondents agreed there has been very little merger or acquisition action in their region among workover companies.
    • Mid-Tier Well Service Manager: “We watch the stock market pretty close and there haven’t been any real big M&A deals as far as we see.”

 

  • Mostly Routine Maintenance Work
    [See Question 5 on Statistical Review]
    ​Routine maintenance work makes up the bulk of well service work in the greater Rocky Mountain area, similar to findings in January. Completion, plug and abandonment (P&A), and standard workover well work is minimal at this time in the region.
    • Mid-Tier Well Service Manager: “We are doing some maintenance. Some of those wells we have we are not doing anything on and some we are doing maintenance for leaseholds."

Maintenance

Completion

P&A

Workover

70%

30%

0%

0%

100%

0%

0%

0%

100%

0%

0%

0%

90%

0%

10%

0%

80%

10%

0%

10%

100%

0%

0%

0%

100%

0%

0%

0%

60%

10%

5%

25%

Average 87%

Average 6%

Average 3%

Average 4%

 

  • Few Completions, But All New
    [See Question 6 on Statistical Review]
    ​Three of the eight respondents said they had not completed a well in the last three months. However, five of the eight respondents said that they had completed wells that were all new.
    • Mid-Tier Well Service Manager: “We are not doing any completions right now. We are doing rod and tubing jobs for the most part.”

 

  • Rates Still Under Pressure
    [See Question 7 on Statistical Review]
    ​The hourly rate for the popular size 500 horsepower (hp) series averages $247 per hour, similar to findings in January. Respondents said that well service rates are in a standstill and there are no expectations of increases during the next three months. See Table I for average hourly rates.
    • Mid-Tier Well Service Manager: “Work demand hasn't grown enough to start raising prices yet. Hopefully, there is a backlog of wells that need completing and when prices get up—we’ll start seeing a lot of wells coming along.”

Table I. – Average Rates For
Other Rockies Workover Rigs

Rig Size (hp)

Average Rate

400 hp series

$218/hour

500 hp series

$247/hour

 

  • Well Service Rates Low But Stable
    [See Question 8 on Statistical Review]
    None of the eight respondents expect hourly rates to go any lower than they are currently. However, only two of the respondents believed that prices had bottomed. There was no indication from any of the respondents that prices could be raised during the next three months.

                                                                          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 Rocky Mountain regions outside of the Bakken shale play. Participants included three oil and gas operators and five managers with well service companies. Interviews were conducted during early July.

Part II. – Statistical Review

Workover/Well Services

[Other Rockies]

Total Respondents = 8

[Operators = 3, Well service companies = 5]

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

Grow:

2

Remain the same:

6


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

Price is the only catalyst:

8


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

None:

8


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

Not aware of any:

8


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

70%

30%

0%

0%

100%

0%

0%

0%

100%

0%

0%

0%

90%

0%

10%

0%

80%

10%

0%

10%

100%

0%

0%

0%

100%

0%

0%

0%

60%

10%

5%

25%

Average 87%

Average 6%

Average 3%

Average 4%


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

No completion work at all this quarter:

5

100% new completion work

3


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

$218/hour

500 hp series

$247/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